Oil prices have surged to near six-month highs, reaching just under $US117 a barrel last week, despite the flow of oil through the Strait of Hormuz returning to pre-war levels. The price had been trading below $US100 a barrel last month, but futures markets suggest it could remain above $US100 well into next year. The increase is attributed to the rising costs of transporting oil through the strait, with chartering a tanker now costing about 12 times pre-war rates, and insurance costs more than tripling. Crew salaries and bonuses have also skyrocketed, reflecting the heightened risks of attacks in the region.
With the US elections just over a week away, Donald Trump's rhetoric towards Iran has intensified. After a period of relative restraint, Trump has hinted at imminent action, stating on Fox News, 'I have a decision to make. Do I finish it off, which would be very easy to do, or do I make a deal?' Iran's Foreign Minister Abbas Araghchi responded defiantly, warning that any renewed US attacks would be met with retaliation. The US has been preparing for potential escalation by moving diplomats and military staff out of the region.
The prospect of renewed conflict has driven up oil prices, with 'Dated Brent' trading around $US125 a barrel late last week. Traders appear to be acting on the belief that a new round of violence could significantly disrupt oil supplies. The futures market also reflects concerns about the long-term impact of the conflict on global oil refineries, particularly in the Middle East and Russia, which could keep refined product supplies constrained even after the war ends.
Despite Trump's confidence in quickly resolving the conflict, the futures market pricing suggests traders have little faith in his ability to deliver a swift outcome. The ongoing damage to refineries in the Middle East and Russia further complicates the situation, as the global supply of refined products remains below pre-war levels. This means that even if oil flows stabilize, the impact on gasoline and diesel prices will persist for some time.