Oil rises as Iran and US trade demands for reopening Strait of Hormuz

Oil prices spiked on Tuesday, reaching a one-week high as concerns grew over potential supply disruptions caused by a possible U.S.-Iran peace deal. Brent futures climbed $1.19, or 1.4%, to $88.91 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $1.07, or 1.3%, to $83.20. This marked the highest closes for both benchmarks since July 31 for two consecutive days, following a sharp 5% increase on Monday as hopes for a peace deal faded.

The newly appointed secretary of Iran's Supreme National Security Council, Mohsen Rezaei, warned that the Strait of Hormuz would stay closed unless the U.S. changes its behavior and accepts Iran's demands to end the conflict. The strait, through which about 20% of global oil supply passes, remained blocked as of the report. Shipping data indicated a significant drop in traffic, with only six vessels passing through on Monday, down from an average of about 11 vessels over a 10-day period.

Prior to the war, daily traffic averaged between 125 and 140 vessels. Elsewhere, the Iran-aligned Houthis attacked a Saudi ship carrying military equipment in the Bab el-Mandeb strait, and a missile struck a container ship off Pakistan, possibly in a U.S. strike. Middle East producers may struggle to return to pre-conflict oil output levels by the end of 2027, even if trade patterns normalize by early next year, according to the U.S. Energy Information Administration.

Elsewhere, renewed violence in Libya's strategic city of Zawiya disrupted the oil industry, with the National Oil Corporation threatening to declare force majeure if drone attacks on energy assets continue. In Europe, Ukraine attacked an oil refinery in the Russian city of Orsk, exacerbating global energy price increases. Russia, the world's third-largest crude oil producer, is a member of the OPEC+ group of countries.

U.S. oil inventories awaited weekly storage reports later in the day, and analysts estimated energy firms pulled 0.5 million barrels from storage during the week ended August 7.