Hormuz Tensions Fuel Oil Price Rally as US-Iran Negotiations Stall
The crude oil market is still affected by tensions in the Strait of Hormuz, which have caused prices to fluctuate over the past two weeks. After a brief dip due to diplomatic optimism, Brent prices rose sharply as Washington and Tehran continued to negotiate, with WTI reaching $84.30 and Brent hitting $90.
The cumulative rally of 12% across six sessions is not driven by improving fundamentals but rather a risk-premium repricing triggered by the market's recognition that resolution is structurally further away than previously assumed. The compensation demand has become a major point of contention, with both sides tabling reparations demands that the other cannot domestically accept.
The physical market is sending a more cautious signal, with the EFP premium rising above $4 and the Brent 1-to-12 month spread widening to $13 in backwardation. US Strategic Petroleum Reserve levels are at their lowest since 1983, reducing Washington's ability to absorb a prolonged supply disruption through emergency releases.
Until the compensation dispute, maritime blockade, and timetable for restoring full Hormuz transit are credibly resolved, the geopolitical risk premium is likely to remain embedded in crude prices. If negotiations continue to lose momentum and the disruption persists, Brent could move towards $95-97 per barrel.