Oil Prices Surge on Disruptions in Key Trade Routes

The global oil market is experiencing a rally due to disruptions in key trade routes. The Strait of Hormuz and Bab el-Mandeb have been closed, leading to increased transportation costs and a surge in oil prices.

The closure has resulted in a $10 per barrel increase in ICE Brent and WTI this week. OPEC+ is expected to raise September output targets by 188,000 b/d at its August 2 meeting, signaling the group's push to unwind voluntary cuts. Despite ongoing US-Iran conflict and Red Sea security threats, OPEC+ aims to fully lift the 2023 cuts.

The Houthis have attacked two Saudi ships in the Red Sea, further escalating threats to Saudi Aramco's crude exports. However, Chinese tankers have continued to pass through the Bab el-Mandeb, highlighting Beijing's readiness to cut a deal with the Houthis amidst mounting risks across the Red Sea.