Oil Risk Premium Stays as US-Iran Tensions Persist

The US-Iran standoff in the Gulf keeps a risk premium in crude oil. The market has yet to price in a full disruption of tanker traffic.

About a fifth of the world's oil passes through the Strait of Hormuz. The US Navy maintains a patrol presence aimed at deterring Iranian seizures of commercial vessels. No tanker has been seized in months, the US Navy said.

The risk premium in the price reflects the possibility of a confrontation, not a certainty, several traders said. A full disruption would require a clear trigger, such as a seizure or a shot fired. Neither has occurred in months.

A sustained spike in oil prices lifts input costs for plastics and fertilizers. The effect is gradual. Diesel and jet fuel prices react faster to crude spikes than naphtha or propane.

The next scheduled data point is the weekly US inventory report, due Wednesday.