However, Brent crude futures peaked at about $126 – well below the 2008 high of $147 – averaging only $101 a barrel from the onset of the conflict on February 28 until June 11, when US President Donald Trump halted strikes on Iran, before briefly falling back to pre-war levels of $70 in early July.
Here are several reasons why oil prices haven’t escalated unexpectedly. Yet.
1. CHINESE SURPRISE
The most significant surprise came from China, the world’s leading oil importer, which reduced crude imports to their lowest levels in nearly a decade by June. Fuel exports were limited, the population began opting for electric taxis over personal vehicles, and its petrochemical industry also cut back on production.
2. US PUMPS MORE
The United States, as the largest oil producer globally, increased crude output to an impressive 13.93 million barrels per day by April. Additionally, it released crude from its Strategic Petroleum Reserve as part of a record 400-million-barrel release coordinated by the International Energy Agency in March, providing a buffer against supply disruptions.
3. TRUMP BURNS BULLS
US President Donald Trump consistently caught oil market bulls off guard with remarks regarding peace deals and the resumption of traffic through the Strait of Hormuz.
Market liquidity has diminished as many traders have hesitated to take large bullish positions due to the risk of sudden market reversals.
”Everyone is bullish now, but nobody is long,” noted Ilia Bouchouev from the Oxford Institute for Energy Studies.
After reducing their bullish position in Brent futures to its lowest this year in early July, funds then made their largest increment in six months for the week ending July 14, according to ICE exchange data released on Friday.
However, at roughly $14.8 billion based on Monday’s prices, this position remains over 50% below the six-year peak seen in late March.
The market is experiencing headline fatigue, which dampens the price impact of new announcements, remarked Ole Hansen, head of commodity strategy at Saxo Bank.
4. HORMUZ FLOWS REBOUND
Saudi Arabia, the largest oil exporter in the Gulf, significantly ramped up shipments from its Yanbu port on the Red Sea, compensating for barrels lost via the Strait of Hormuz.
Shipments through Hormuz temporarily resumed in June, alleviating concerns about crude availability, but fell again in July as hostilities reignited.
5. AMPLE SUPPLY OF PROMPT PHYSICAL CARGOES
Traders report a sufficient supply of physical oil, which limits price reactions to the latest intensification in the conflict. Crude oil differentials in Europe, particularly North Sea Forties, that influence the global dated Brent benchmark have declined to a discount from a record premium observed in April.
”There is an abundance of prompt crude currently available,” stated veteran trader Adi Imsirovic. ”It might not last!”
