Key facts
- Brent crude futures for prompt delivery are trading at a significant premium to later contracts, indicating tight near-term supply.
- The shift to backwardation reflects renewed concerns over Middle Eastern oil supply security due to escalating U.S.-Iran tensions and attacks near the Strait of Hormuz.
- Oil and gas tanker traffic through the Strait of Hormuz has fallen to its lowest level since May 25.
- Middle East crude benchmarks Oman, Dubai, and Murban have moved from discounts to premiums.
- President Donald Trump reimposed a naval blockade on all Iranian ports.
- Iran launched retaliatory strikes on U.S. infrastructure in the region.
Brent crude oil futures for prompt delivery have surged to a one-month high against contracts for delivery six months later, a market structure known as backwardation. This shift signals increasing concerns over near-term oil supplies due to heightened geopolitical tensions between the U.S. and Iran, including military strikes and vessel attacks near the Strait of Hormuz.
The premium of the first-month Brent contract over the sixth-month contract reached $8.92 a barrel, its largest since June 10. This contrasts with an earlier period in July when prompt Brent traded in contango, indicating ample near-term supplies. Analysts suggest the backwardation reflects expectations of constrained crude availability in the coming weeks.
Middle East crude benchmarks such as Oman, Dubai, and Murban have also moved from discounts to premiums, further underscoring growing supply concerns. Data indicates that oil and gas tanker traffic through the Strait of Hormuz has fallen to its lowest level since May 25.
Earlier developments contributing to market volatility included President Donald Trump's threat of a 20% levy on cargo ships transiting the Strait of Hormuz, which spooked traders and caused oil prices to surge. Hawkish comments from Federal Reserve Governor Christopher Waller also impacted markets, alongside speculation about potential interest rate hikes. European shares opened lower, while Asian markets experienced volatility. BP's earnings benefited from higher oil prices.
Oil prices rose further on Wednesday as President Donald Trump reimposed a naval blockade on all Iranian ports and Iran launched retaliatory strikes on U.S. infrastructure in the region. Brent closed at its highest since June 12 and West Texas Intermediate at its highest since June 15. The U.S. military stated it began fresh strikes to degrade Iranian capabilities used to attack commercial shipping. Iran claimed it closed the strait after hostilities reignited, and Trump indicated he would target energy infrastructure if hostilities intensified. Iran's army reported drone attacks on U.S. positions, and the Revolutionary Guard Corps claimed targeting of weapons and storage facilities.