Crude Prices Skyrocket as Ceasefire Collapses in Middle East

The oil market has been caught off guard by the collapse of the ceasefire between Washington and Tehran, leading to a surge in crude prices. After the signing of a memorandum of understanding (MoU) on June 17, analysts had slashed price forecasts, and Brent crude slipped back to $72 a barrel in early July as traders priced in returning Middle Eastern supply.

However, Iranian missiles struck commercial vessels in the Strait of Hormuz in early July, followed by successive waves of strikes from the US, Iran's retaliatory attacks on US bases in Kuwait and Bahrain, and the declaration that the waterway was closed 'until further notice'. The US reimposed a naval blockade of Iranian ports, leading to a surge in Brent crude prices by 9.6% on July 13, touching $87 a barrel.

According to Tracy Shuchart, chief market strategist at Hilltower Resource Advisors, the paper market has become disconnected from physical reality, with oil futures signaling abundant supply while the physical market tells a tighter story.