Oil Prices Struggle Amid Persistent Supply Gap and Disrupted Shipping Routes

Oil prices are under pressure as an 8.3 million barrel per day supply gap persists, but demand destruction is doing some of the balancing act. Brent crude has been climbing toward $92, extending its four-session winning streak to a fifth on Wednesday, with West Texas Intermediate reaching $85 after settling at $84.92 on Tuesday.

The immediate driver behind this market volatility is a diplomatic vacuum, as the 60-day memorandum signed in June expired without an agreement to replace it. The Strait of Hormuz remains closed until the U.S. meets six sweeping demands from Iran, and eight attacks on vessels transiting the waterway have been reported so far this month.

The physical market has adapted by building routes around the constraint, with Middle Eastern producers moving oil through the strait to global buyers while supplying cargoes from outside the chokepoint. However, the insurance market remains a binding constraint, as tankers remain hesitant to transit the Strait of Hormuz due to the threat of attack and cancellation of coverage.