Oil climbs 0.8% as Hormuz attacks stoke supply fears

Brent crude rose 0.8 percent to $89.63 a barrel Wednesday as fading hopes of a US-Iran peace deal and fresh attacks on ships in the Strait of Hormuz and Bab el-Mandeb kept a geopolitical risk premium embedded in global oil prices.

"Iran is using the fear factor of real physical risk to retain a measure of control," said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security. "The risk-reward is simply not there for many global tankers."

US West Texas Intermediate crude gained 0.85 percent to $83.91, after both benchmarks settled more than $1 higher in the previous session for their highest closes since July 31. Monday's roughly 5 percent jump followed the collapse of hopes for a diplomatic breakthrough between Washington and Tehran. Ship-tracking data from Kpler shows just 14 vessels crossed the waterway Tuesday, down from more than 130 a day before the war, with 11 taking the route administered by Iran. War-risk insurance for a Hormuz transit has climbed to as much as 10 percent of a vessel's value, from about 0.25 percent before the conflict, according to insurance broker Marsh.

The disruption carries global costs. The International Energy Agency said the strait has been effectively closed again since June's deal to reopen it collapsed last month, derailing a nascent recovery in Gulf oil supplies. The US Energy Information Administration estimates about 5.5 million barrels a day of Middle Eastern production was shut in during July — more than 5 percent of global consumption — with some output potentially remaining offline through 2027. For importers such as India, prolonged disruption keeps crude elevated, pressuring import costs, the rupee and domestic fuel prices.

Shipping Attacks Turn Deadly in Bab el-Mandeb

The Houthis struck the Tanzanian-flagged cargo ship Tihamah off Yemen on Tuesday, killing four sailors, according to Yemeni authorities, the first reported fatalities from Houthi attacks on shipping since the war began. The ship was hit again as rescuers arrived to evacuate the crew. Iran separately targeted a tanker owned by Abu Dhabi National Oil Company in the strait on Saturday, following hits on three other vessels last week, the UAE said. The attacks have pushed war-risk premiums in the southern Red Sea to 1 percent to 2 percent of vessel value, up from 0.3 percent before the Houthis' blockade announcement, according to insurance broker Marsh.

US Crude Inventories Jump 9.1 Million Barrels

Industry data from the American Petroleum Institute showed US crude inventories rose by about 9.1 million barrels in the week ended August 7, far exceeding the decline a Reuters poll had expected. Gasoline stocks fell 1.5 million barrels while distillate inventories declined 596,000 barrels. Official figures from the Energy Information Administration are due Wednesday and could ease near-term concerns about market tightness if confirmed.

The disconnect between President Trump's assertion of total US control over the strait and the reality on the water has become a central tension in the market. The US Navy has guided a number of tankers through, but around half of the ships that risked crossing in August chose the Iran-administered route and only two of 166 crossings used the US-backed corridor along Oman, according to Kpler. Markets are watching whether Washington and Tehran can reach an agreement restoring stability to shipping. Until then, further attacks on vessels or setbacks in negotiations could keep a geopolitical risk premium embedded in global oil prices. The last time the June ceasefire collapsed in early July, daily crossings fell from 33 in June to 26 in July, and crude and shipping costs surged again.

This article is for informational purposes only and does not constitute investment advice.