WTI crude up 22% in July as Murban futures crash 19% weekly

The sharpest divergence between US and Middle East crude benchmarks in months emerged this week as WTI's July rally held while Abu Dhabi Murban futures unwound a geopolitical spike.

WTI crude closed July up 22.23 percent at $84.67 a barrel, while Abu Dhabi Murban futures crashed 19.07 percent this week to $78.54 after spiking to $114.92 on July 23.

"Oil prices are seen gaining as Middle East supply disruptions persist," according to a Reuters poll of analysts, even as diplomatic overtures between Washington and Tehran briefly eased supply fears at the start of the week.

The week's price action tells a two-sided story. WTI September futures rose 1.29 percent Friday to $84.67, capping a month that saw the US benchmark gain 22.23 percent on persistent supply concerns. Murban futures fell 8.37 percent Friday to $78.54, erasing most of the geopolitical premium built after the July 23 spike to $114.92 — a level reached when US strikes on Iran-backed groups and threats to close the Strait of Hormuz sent the Middle East benchmark to record territory.

The divergence carries implications beyond crude. Brent October futures traded at $88.58 a barrel Friday, down 3.4 percent for the week, while WTI September held at $85.39, up 0.3 percent. The gap between US and Middle East benchmarks reflects different risk assessments: US supply remains tight with inventories declining more than expected, while Middle East supply fears have eased as Saudi Arabia and 13 partner countries announced a maritime defense coalition to safeguard shipping through the Bab el-Mandeb Strait, the Red Sea, and the Gulf of Aden.

The week began with oil prices under heavy selling pressure after President Trump paused military strikes on Iran, raising expectations that Washington and Tehran could return to negotiations. The move prompted investors to unwind much of the geopolitical risk premium built during the previous week's rally. WTI and Brent both declined Monday and Tuesday as Trump said there was a "good chance" of reaching an agreement with Iran, while Tehran announced it had halted retaliatory attacks.

The sell-off reversed mid-week as renewed military activity revived supply concerns. Joint US-Saudi strikes against Iran-backed groups in Iraq, Iran's attempted ballistic missile attack on US forces, fresh US sanctions targeting Iran's oil trade, and Tehran's warning that the Strait of Hormuz would remain closed under current conditions all supported prices. A larger-than-expected decline in US crude inventories reinforced expectations of resilient fuel demand.

The rally lost momentum Friday after the maritime defense coalition announcement. Yemen's Iran-backed Houthi group had declared a maritime blockade against Saudi Arabia on July 20 and claimed attacks on Saudi-linked vessels, but the coalition's formation eased concerns over the security of one of the world's most important energy shipping corridors.

What the divergence means for inflation and Fed policy

The crude price divergence feeds directly into the macro picture. WTI's 22.23 percent July gain keeps inflation expectations elevated at a time when the Federal Reserve is already grappling with price pressures running double its target. September rate hike odds climbed to 68 percent on Tuesday, up from 62 percent the day before, according to FedWatch data. Treasury yields climbed across the curve, with the 10-year at 4.5812 percent and the 30-year pushing above 5 percent to 5.0752 percent.

The Fed minutes from the June 16-17 meeting, released Wednesday, showed the committee leaning toward at least one more hike. "The FOMC minutes will be a wildcard simply because Warsh was so opaque at the most recent press conference," said Adam Crisafulli, founder of Vital Knowledge.

The cross-asset reaction has been telling. Spot gold fell 1.31 percent to $4,052.40 Wednesday as the dollar index hit 101.18, its highest level since July 2, while Treasury yields climbed. The dollar's strength and rising yields are squeezing commodities across the board, even as geopolitical risk in the Middle East remains elevated.

If crude keeps pressing higher, the inflation read gets worse and the rate path gets harder. But if Middle East tensions continue to ease and Murban's crash extends, the pressure on global energy prices could moderate. The next test comes with the July Nonfarm Payrolls report on August 7, which will shape expectations for the September Fed meeting. NYMEX August natural gas settled at $2.7470 per million British thermal units, while August gasoline closed at $3.2216 a gallon and August heating oil at $4.1215 a gallon.

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