Oil: Hormuz risk supports prices – Commerzbank

Commerzbank's analysts, Charlie Lay and Dr. Henry Hao, indicate that oil prices surged on Monday, driven by markets re-evaluating the prospects of a potential deal to reopen the Strait of Hormuz. On the previous trading day, Brent crude settled at USD88.91, while West Texas Intermediate (WTI) closed at USD83.20. Iran maintains that the strait will remain closed until its demands are satisfied, but heightened geopolitical risks could maintain tight energy markets and fuel further upward pressure on US inflation.

The conflicting signals suggest that negotiations are ongoing, yet a deal that would allow normal shipping through the Strait of Hormuz does not seem imminent at this time. Geopolitical tensions persist in the region, with incidents involving a US Navy helicopter firing on an Iranian cargo vessel attempting to break the US blockade of Iranian ports. Similar events occurred in the Gulf of Oman and off Yemen's Red Sea coast.

European diesel prices also escalated due to disruptions in refining capacity, amplifying fears about already strained energy markets. Although lower energy prices in July may provide some relief to headline inflation, the subsequent rise in oil prices could once again exert upward pressure on inflation in the months ahead.

Brent oil prices increased as Iran reaffirmed that the Strait would remain closed until its conditions were met, despite Pakistan reporting that Washington and Tehran were nearing an agreement. The US dollar remained relatively stable.