Brent crude prices experienced a significant surge, rising 12% this week, primarily driven by escalating geopolitical tensions involving the US and Iran, as well as threats from the Houthi group to impose a maritime blockade on Saudi Arabia. The majority of this price rebound occurred on Monday and Tuesday, following renewed strikes by both the US and Iran. Additional upward pressure on prices was attributed to former President Donald Trump's statements about launching record strikes against military targets and a brief proposal for the US to charge fees for ensuring the safe passage of commercial vessels. The situation intensified further when the Houthis announced their intention to blockade Saudi Arabia in response to what they described as a Saudi siege on Sana’a, the Yemeni capital [1].
Oil prices initially rallied toward $91 per barrel on these developments but later retreated, indicating that the market remains relatively complacent about the potential threats to regional energy flows. Despite the initial rally, the market's reaction suggests that traders are not fully pricing in the risk of significant disruptions [1].
Crack spreads, which measure the difference between crude oil and refined product prices, have also strengthened notably. In Asia, crack spreads rose by 22%, while in the US they increased by 12%. This reflects heightened concern in Asia over the possibility of prolonged disruptions to flows through the Strait of Hormuz and the associated risk of product shortages. Tanker data further supports a crude-centric recovery, with crude oil now accounting for nearly 80% of Hormuz transit volumes, about five percentage points higher than before the conflict. Meanwhile, LNG traffic through the strait has lagged significantly [1].
Inventory data shows an increase of 21 million barrels in June, with most, if not all, of this build occurring in crude oil rather than refined products. This suggests that while crude supplies have grown, refined products remain relatively tight, supporting stronger crack spreads [1].
CONCLUSION
Brent crude's 12% weekly surge underscores the market's sensitivity to geopolitical risks, particularly in the Middle East. While prices initially spiked on news of renewed US-Iran tensions and Houthi threats, the subsequent retreat indicates a degree of market complacency. Strengthening crack spreads and rising inventories highlight ongoing concerns about supply disruptions and product shortages.