Donald Trump stated that the US will strike Iran hard again today, but did not specify the targets. After this, oil prices went up, although there was still no strong panic in the market.
Earlier, the US military struck facilities near the Strait of Hormuz. Iran in response launched drones toward the US Fifth Fleet in Bahrain. US Central Command US also reported that in the Gulf of Oman, the tanker M/T Settebello under the flag of Palau was disabled.
Amid the new escalation, WTI rose by 2.1% and on Wednesday reached $91 per barrel. But the price is still far from the April high. Now oil is trading about 25% below the crisis peak.
What Is Preventing Oil From Returning to Highs
At first glance, the situation around Iran and the Strait of Hormuz should have pushed prices up more. But the market is reacting cautiously for now.
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The main reason is weak demand from China. Oil imports into the country have dropped to multi-year lows, which reduces pressure on the global market. When the biggest raw material buyer purchases less, even geopolitical risks do not always give prices a strong boost.
The second factor is strategic reserves. Several countries have already released additional volumes of oil to the market to smooth out possible supply disruptions. This helped cool expectations of a new energy shock.
There is also a third point. Oil is still passing through the Strait of Hormuz, albeit not always openly. Even after new US strikes on Iranian facilities, the movement of raw materials has not completely stopped. As long as supplies continue, traders are in no hurry to price in the worst-case scenario.
Inventory data in the US looks tense. Last week, inventories fell by 7.2 million barrels. This is already the seventh consecutive decline, and analysts had expected a more modest drop of about 4 million barrels.
Stocks at the Cushing storage facility in Oklahoma also fell. But they are still above the levels at which problems for the normal operation of infrastructure begin.
Shell CEO Wael Sawan at the Wall Street Journal CEO Council conference in London described the situation quite simply:
“Right now, the market is trying to find balance. Mostly, it is driven by short-term headlines.”
Oil rose above $93 after new strikes. Source: Trading Economics.
The gap between physical oil and futures, which widened sharply in the first weeks of the crisis, has narrowed significantly. Previously, physical Brent reached $141, while futures traded around $107. Now the market no longer looks so split.
US Secret Operation in the Strait of Hormuz
On Wednesday, Trump said that the US secretly moved more than 200 commercial vessels and over 100 million barrels of oil through the Strait of Hormuz. According to him, this was part of a secret mission, but he did not disclose details.
Sources familiar with the operation say some ships passed through the strait at night with their lights off. This was an attempt to reduce the risk of detection and avoid possible attacks.
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This is exactly what helps explain why oil did not soar to new highs. Supplies through the Strait of Hormuz continue, demand from China has weakened, and strategic reserves have partially covered deficit fears.
But the situation still remains fragile. The truce agreed at the end of April has effectively collapsed. StoneX analyst Fawad Razaqzada in a comment to Bloomberg noted that risks for the oil market are still skewed toward higher prices.
Iran, in turn, said it does not intend to give in under pressure and will respond to any threats.
Now everything depends on how the market weathers the next wave of strikes. So far, oil has handled each new escalation more calmly than many traders expected. But if supplies through the Strait of Hormuz really come under threat, the reaction could be very different.
