Brent Surges to $92 as Iran Tensions Rattle Oil Market

The dollar rallied alongside oil. The probability of a rate hike by the September meeting has climbed to 70%, traders said, reversing a decline that had set in after US inflation slowed in June and July. Much of that disinflation came from falling energy prices after the earlier de-escalation in the Middle East. With geopolitical risk back, the rate path has shifted.

Supply disruptions have not been as severe as some feared. At the start of the conflict, analysts talked of $150 crude. Kpler reported that transit volumes through the Strait of Hormuz have fallen from 18 million barrels a day before the fighting to 4.9 million. A Bloomberg insider said the actual figure is probably closer to 9 million, in part because of the shadow fleet and alternative routes. Middle East exports dropped from 21 million to 9.5 million bpd, according to Kpler.

The market is beginning to treat the supply disruption as structural rather than temporary, several oil traders said. That view is reinforced by the drawdown in US strategic reserves, which fell 5.3 million barrels last week to the lowest level since 1982. The shrinking safety cushion, combined with sustained disruption in the Strait, leaves Brent exposed to a test of $100, traders said.