Oil Prices Ease as Traders Weigh US-Iran Conflict Risks

Oil prices saw a slight decrease on Thursday, with traders carefully evaluating the heightened tensions between the United States and Iran and the potential impact on global oil supplies transiting the critical Strait of Hormuz. Brent crude futures dipped by 0.32% to $84.68 a barrel, while US West Texas Intermediate futures were down 0.14% to $79.49, remaining close to their highest levels in a month.

The market's reaction has been described as surprisingly calm, yet analysts anticipate further price increases. Ole Hvalbye, a market analyst at SEB Research, noted that prices could climb towards $90-$95, potentially even touching $100 again, due to recurring disruptions in the Strait of Hormuz, which create significant uncertainty over oil flows from the Persian Gulf.

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The market is still reacting with a surprising degree of calmness. It seems reasonable that prices could continue to climb towards $90-$95 and maybe even touch the $100 mark again and that is because the Strait of Hormuz is repeatedly being disrupted, creating uncertainty over oil flows from the Gulf.

These developments follow US airstrikes on Iran's coastal defenses and missile sites after reimposing a naval blockade. Tehran has responded with threats to cut off more regional energy exports, framing the conflict as an "existential war" with the US. The fragile truce from June has collapsed, reviving fears of a full-scale conflict and jeopardizing energy transit through the Strait, which previously handled about a fifth of global oil and LNG trade daily.

While oil tankers continue to navigate the Strait of Hormuz, albeit in reduced numbers, market strategists remain cautious. Wael Makarem, lead financial markets strategist at Exness, stated that immediate supply risks are being assessed. Iran has declared the strait an inviolable "red line," warning of retaliatory strikes on Gulf infrastructure if the US attacks its facilities. Analysts also point to Iran potentially using its Houthi allies in Yemen to disrupt traffic through the Bab el-Mandeb strait, threatening another vital energy artery.

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Markets could remain cautious as they assess immediate supply risks. So far, despite heightened military tensions, oil tankers continue to sail through the Strait of Hormuz, although in more limited numbers.