Oil rises as doubts over US-Iran deal heighten supply concerns

Oil prices surged on Wednesday as doubts surrounding a potential U.S.-Iran peace agreement and attacks on two vessels raised fears of Middle East supply blockages. Brent futures increased 72 cents, or 0.81%, to $89.63 per barrel by 0053 GMT, while U.S. West Texas Intermediate (WTI) crude jumped 71 cents, or 0.85%, to $83.91. Both benchmarks had closed more than $1 higher on Tuesday, marking their highest levels since July 31 and building on gains after a 5% jump on Monday as hopes for a peace deal between the U.S. and Iran began to wane.

The U.S. and Yemen's Iran-aligned Houthis separately claimed attacks on shipping in the Strait of Hormuz and the Bab el-Mandeb Strait on Tuesday. Iran's top security official, Mohsen Rezaei, stated on Tuesday that the critical Strait of Hormuz shipping lane would remain closed unless the U.S. agreed to Iran's demands for ending the conflict, including the release of frozen Iranian assets and a cessation of other regional conflicts.

Shipping data revealed that traffic through the Strait of Hormuz had plummeted to six vessels on Monday, down from an average of roughly 11 over a 10-day period. Prior to the war, daily traffic in the waterway typically ranged from 125 to 140 vessels. The recent drop in shipping activity has heightened concerns about potential supply disruptions in the region.

On the supply side, a Reuters poll on Tuesday indicated that U.S. crude oil and fuel inventories were projected to have decreased over the previous week. However, market sources citing data from the American Petroleum Institute reported a sharp rise in U.S. crude inventories in the week ending August 7, while gasoline and distillate stocks fell.

Crude stocks surged by approximately 9.1 million barrels, while gasoline and distillate inventories declined by 1.5 million barrels and 596,000 barrels, respectively, from the prior week, according to the sources.

If confirmed in the upcoming EIA report, the significant crude build could alleviate market worries about supply constraints. The EIA's official numbers, provided by the statistical division of the U.S. Department of Energy, are scheduled for release at 10:30 a.m. ET (1430 GMT) on Wednesday. Long-term supply concerns are also noted, with the EIA expecting disruptions of about 600,000 barrels per day in Middle East crude oil supplies to endure until the end of 2027.