Oil Traders Stay Bearish Despite Deepening Middle East Disruptions
Despite continued hostilities in the Middle East and an expansion of the war to the Red Sea, oil traders have remained largely bearish on the commodity, betting on a quick peace deal—and they might get a nasty shock. Earlier this week, Brent crude sank below $80 per barrel, and WTI dropped below $75, after President Trump said peace talks between the United States and Iran had resumed, even…
Oil traders remain bearish despite escalating Middle East conflicts, suggesting a potential shock in store. Brent crude fell below $80 per barrel and WTI dropped under $75 following President Trump's reported resumption of peace talks between the US and Iran, which Iranian officials deny. Iran and Oman are negotiating control over the Strait of Hormuz, adding to the bearish outlook.
Yemeni Houthis have targeted Saudi tankers in the Red Sea, causing Saudi oil exports to reroute through the Suez Canal and a smaller capacity pipeline to Egypt's Mediterranean coast, further constraining oil exports. Meanwhile, Iranian parliament is discussing a bill to ban US, Israeli, and other "hostile" vessels from the Strait of Hormuz, potentially hindering energy carrier passage.
The latest news from the Persian Gulf has traders' attention on oil prices rising, reflecting possible restrictions on tanker traffic in the Strait of Hormuz, which once accounted for about a fifth of global oil and gas trade. The current situation is unique as oil prices have historically reflected ground events rather than speculation.
Last year, sanctions on Russia threatened global oil flows, but Russian oil redirected to the East led traders to believe oil always finds a way through. However, this time, there is literal destruction of supply. Global oil production is 9.4 million barrels daily below pre-war levels, according to the International Energy Agency, with 15 vessel attacks reported in the Hormuz area.
Analysts predict normalization of flows in the third quarter, expecting Brent to average $80/bbl this quarter, despite the potential for future shocks.
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