WTI Oil jumps over 3% as Iran sets conditions for Strait of Hormuz reopening

West Texas Intermediate (WTI) oil prices surged by 3.20% on Monday, trading around $78.80. Market uncertainty surrounding the reopening of the Strait of Hormuz and ongoing tensions in the Middle East played a crucial role in driving oil prices higher. The Strait of Hormuz, crucial for global energy supplies, is home to approximately 20% of the world's oil trade.

Iran has laid down several conditions before agreeing to fully reopen the strait, including an end to the US naval blockade, withdrawal of US naval and air forces from Iran, compensation for damages caused by recent conflicts, lifting of sanctions, and unconditional release of frozen Iranian assets. These demands have raised concerns about a prolonged disruption in oil flows, thus keeping WTI prices elevated.

Meanwhile, discussions with Oman concerning a safe shipping route through the Strait of Hormuz are reportedly progressing. However, an agreement on a full reopening is required to alleviate investor unease about the risk of an extended disruption in oil supply. Additionally, attacks by Iran-backed Houthi rebels on Saudi energy infrastructure, such as a recent drone strike on a Saudi Aramco refinery in Jazan, have further intensified worries regarding the security of oil supplies in the region.

Analysts suggest that developments in negotiations over the Strait of Hormuz will continue to be a primary factor influencing WTI oil prices. If a deal materializes, it could help reduce the geopolitical risk premium attached to oil, whereas a stalemate or further escalation in the region could further support crude oil prices. In anticipation of a potential deal, trend-following accounts, known as CTA's, have moved back into the buy side, with CTA’s purchasing crude oil, heating oil, and WTI and Brent crude oil.

Despite these positive developments, the presence of geopolitical risks remains a significant factor supporting oil prices. ING Bank points out that "oil prices continue to be supported by uncertainty surrounding the Strait of Hormuz," as US President Donald Trump's semi-negotiations with Iran and the absence of broad agreement between Iran and Oman further complicate the outlook.

Despite the supportive environment, speculative positioning has turned more cautious, with money managers cutting net long positions in NYMEX WTI by 7,257 lots and ICE Brent by 20,361 lots, marking a second consecutive weekly decline. Fundamental factors, including the recovery in US oil activity, reflected by a rise in the oil rig count to 454, the highest level since May 2025, and the continued elevated US crude exports, have also contributed to the bullish sentiment in the oil market.