Oil Prices Soar Amid Escalating Tensions in Strait of Hormuz

Oil prices have risen higher this week as tanker shipments through the Strait of Hormuz slow down once again and tensions between Iran and the US escalate. The proposed new economic sanctions on Iran by the US have heightened tensions, with Iran indicating it will permanently operate the key bottleneck in the Strait. Crude prices have stair-stepped higher this week, with WTI's high at $87.70/bbl for September and October Brent crude hitting its high at $94.70/bbl.

The EIA's Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased while production remained flat. The Strategic Petroleum Reserve (SPR) was down 5.3 million bbl to 293 million bbl, the lowest level since 1983. Meanwhile, Iraq seeks to increase its output from the current 2.9 million b/d but will need both OPEC approval and new routes to deliver its shipments.

The market optimism regarding a resolution of the Iran conflict appears to be diminishing as prices look to stay higher for longer. Traders view the economic sanctions as only firming Iran's resolve, leading to further restrictions on Hormuz passage and additional attacks on its neighbors.