Oil prices steady as investors weigh impact of expanded US sanctions against Iran

Oil prices stabilized on Tuesday, Aug 25, following a decline of over 2% on Monday (Aug 24) as investors evaluated the effects of intensified US sanctions on Iran. Brent crude futures dropped 9 cents, or 0.1%, to $92.16, while US West Texas Intermediate crude increased by 1 cent to $85.02 a barrel. Both contracts had fallen more than 2% on Monday, with US crude oil hitting an one-week low on profit-taking after a two-week rally.

US Treasury Secretary Scott Bessent unveiled an expansion of sanctions on Monday to sever Iran's economic lifeline, aiming to bring an end to the conflict. He cautioned that countries would need to sever business ties with Iran or face exclusion from the dollar-based financial system. However, details on targeted countries and the timeline of the penalties were withheld, giving nations time to comply.

US Defense Secretary Pete Hegseth expressed a willingness to consider military action against Iran, but the focus shifted towards economic coercion, which analysts deemed a lower-risk path for maintaining Middle Eastern oil supply. Iran remains capable of disrupting shipping, which keeps a residual premium in oil prices. On Tuesday, an unidentified projectile disabled an oil tanker approximately 16.7km northeast of Oman's Ash Shishah, as reported by the United Kingdom Maritime Trade Operations.

Iran continues to assert control over the Strait of Hormuz, historically carrying about 20% of global oil use, and has named 45 tankers that violated its rules, threatening sanctions up to confiscating cargoes. The supply disruptions caused by the US-Israeli war on Iran since February 28 have prompted countries to reduce their commercial and strategic reserves.

The Department of Energy reported that crude oil stocks in the US Strategic Petroleum Reserve fell by about 3.7 million barrels to 289.7 million barrels last week, the lowest since November 1982.