Brent gains 1.5% as shipping security concerns around the Strait of Hormuz intensify supply fears, while traders weigh diplomatic efforts to ease regional tensions
Global oil prices rose on Wednesday as escalating tensions in the Middle East heightened fears of supply disruptions, while declining US crude oil and petroleum product inventories provided additional support to the market.
Brent crude futures advanced $1.59, or 1.5%, to $110.38 per barrel as of 0350 GMT, while US West Texas Intermediate crude gained $1.36, or 1.4%, to $99.18 per barrel.
The gains followed a volatile trading session in which oil prices retreated amid renewed hopes for diplomatic engagement between Iran and regional intermediaries, even as Brent had earlier reached a five-month high.
The latest advance reflects persistent uncertainty over the security of energy shipments and the possibility that further escalation could restrict the flow of crude oil from the Middle East to international markets.
Attacks on vessels around the Strait of Hormuz have intensified concerns among traders about the vulnerability of one of the world’s most important energy transportation routes.
The waterway connects the Persian Gulf with international shipping routes and serves as a major corridor for crude oil and petroleum product exports. Any sustained disruption could tighten global supplies, increase transportation costs and push prices higher.
With markets already reacting to geopolitical developments, investors are closely monitoring shipping activity, security conditions and diplomatic initiatives that could either ease or intensify supply concerns.
Diplomatic hopes compete with supply risks
Oil prices experienced a pullback during the previous session after Iranian President Masoud Pezeshkian discussed mediation efforts during a meeting with Pakistan’s army chief in Tehran.
The engagement raised hopes that diplomatic channels could help reduce tensions and prevent further disruption to energy supplies.
However, optimism surrounding a possible negotiated settlement remains limited by uncertainty over the timing, terms and likelihood of any agreement.
Suvro Sarkar, head of energy research at DBS, said oil prices had experienced significant volatility over the preceding sessions, reflecting competing market expectations.
He attributed the movements partly to profit-taking and hopes for a deal brokered by Qatar or Pakistan, balanced against the assessment that a resolution remained distant.
The comments highlight the difficulty traders face in pricing geopolitical risks when diplomatic developments can quickly alter expectations but do not necessarily translate into an immediate improvement in security conditions.
For oil markets, the distinction between diplomatic engagement and an actual restoration of safe and uninterrupted shipping remains important. Until traders have greater clarity about the security of maritime routes, prices could remain vulnerable to sharp movements in either direction.
US inventory declines add to upward pressure
Beyond geopolitical concerns, declining US inventories have emerged as another factor supporting crude oil prices.
Data from the American Petroleum Institute indicated further drawdowns in US crude oil and petroleum product stockpiles, suggesting a reduction in available inventories.
Falling inventories can strengthen oil prices by signalling tighter supply conditions, particularly when demand remains resilient or traders anticipate additional constraints on production and distribution.
The inventory figures have therefore reinforced the upward pressure created by developments in the Middle East, although the extent to which the declines will be reflected in official US government data remains an important consideration for the market.
Traders typically assess inventory movements alongside refinery activity, fuel consumption, imports, exports and domestic production to determine whether changes in stock levels indicate a lasting shift in supply-demand fundamentals.
The latest drawdowns also come at a time when geopolitical uncertainty is increasing the sensitivity of prices to fresh information about production and transportation.
Higher oil prices raise inflation concerns
The rise in crude prices could have broader implications for the global economy if sustained.
Higher oil prices can increase the cost of petrol, diesel, aviation fuel and other petroleum products, putting pressure on transportation, manufacturing and logistics businesses.
These additional costs can eventually feed into consumer prices, complicating efforts by central banks to bring inflation under control.
For oil-importing economies, including Nigeria, prolonged increases in international crude and refined petroleum product prices can create competing effects. Higher crude prices may improve potential export earnings, but elevated refined-product prices can increase domestic fuel costs and place pressure on businesses and household purchasing power.
The overall impact depends on factors including domestic refining capacity, fuel pricing, exchange rates, production levels and the extent to which higher crude prices translate into export revenue.
For international investors, the immediate focus remains on whether diplomatic efforts can reduce the threat to energy shipments and whether US inventory data continues to point to tighter market conditions.
If shipping risks intensify while inventories continue to decline, oil prices could face further upward pressure. Conversely, credible progress towards de-escalation and improved supply conditions could ease some of the risk premium currently reflected in the market.
The latest price gains underline the extent to which oil trading remains caught between hopes of a diplomatic breakthrough and persistent fears of disruption to global energy supplies.
