Yesterday (07/15), the most active Brent futures contract closed with a slight gain of 0.26%, quoted at USD 84.95/bbl. WTI mirrored the movement, settling at USD 79.60/bbl (+0.33%).
This price action was underpinned by escalating direct military tensions between the US and Iran. Washington reinstated the naval blockade on Iranian exports and launched new strikes on coastal facilities and missile systems, while Tehran threatened to disrupt regional energy flows and reiterated the Strait of Hormuz as a "red line." The number of vessels transiting the Strait dropped from 13 to fewer than 10 within 24 hours, virtually eliminating VLCCs and LNG carriers from the route, as investors priced in a physical supply risk rather than solely a geopolitical one.
This morning (07/16), around 8:40 am, Brent was down 0.4%, trading near USD 84.68/bbl, with investors adopting a more cautious stance following the recent surge and balancing expectations regarding the global market outlook, as sustained weak demand in China continues to mitigate the impact of lower supply from the Middle East.
Strait of Hormuz sees reduced vessel traffic and suspended operations at Iraqi terminals
The combination of the American naval blockade and a drone incident at the Basra terminal has simultaneously increased both the geopolitical risk premium and the physical supply risk. The number of vessels crossing the Strait dropped from 13 to 9 in one day, with no record of VLCCs or LNG tankers. In Iraq, crude loading was suspended across all terminals after drones hit a tanker ship at anchor, causing no structural damage but halting operations as a precautionary measure.
Why it matters: The significant reduction in the number of vessels transiting the Strait of Hormuz, combined with intensified attacks on ports and terminals in the Persian Gulf, reinforces the perception that the situation in the Middle East has reverted to the conditions observed during the peak of the conflict, with a minimal physical volume of oil flowing through the Strait. Meanwhile, at the global level, inventories are running at lower levels, thus reducing the available options to source products from alternative suppliers in the market.
What to expect? As long as the American naval blockade and Iranian threats regarding the Strait persist, Brent is likely to trade with a bullish bias, as seen in recent sessions. Should Tehran enlist its Houthi allies in Yemen to close the Bab el-Mandeb Strait, a critical energy corridor in the Red Sea, prices would likely escalate further. If Iraqi terminals resume operations quickly and Strait traffic stabilizes, part of the current risk premium would be alleviated.
Refining crisis in Russia and expanding Indian gasoline flows
Ukrainian attacks on Russian refining infrastructure have compromised approximately 40% of national capacity for at least two months, prompting Rosneft, Gazprom Neft, and Lukoil to seek gasoline from the Indian market. This represents an unprecedented reversal in bilateral trade flows, as India is one of the largest buyers of Russian seaborne crude. At least one cargo has already departed from India; however, Indian state refiners indicate a lack of surpluses available for export.
Why it matters: Gasoline shortages in Russia are redirecting refined products from their usual routes, putting pressure on global refining spreads and reducing available supply for Asian and European markets. If further attacks force Russia to seek diesel as well, the impact on Brazil's imported refined product market would become material.
What to expect? Russian demand for Indian gasoline is likely to persist until refining capacity is restored, with the potential extension to diesel posing a risk of additional increases in crack-spreads. If Indian refiners find surpluses or traders intermediate new volumes, some pressure would be alleviated, but the fragility of the global refined products balance would remain.
