WTI Nears $88 as Hormuz Traffic Falls to Seven Ships

Crude oil finished higher Friday with supply restrictions through the Strait of Hormuz still controlling the direction. October West Texas Intermediate futures settled at $87.06, up 23 cents. October Brent crude closed at $94.39, up 61 cents. The gains were modest. The uptrend held.

The temporary U.S.-Iran agreement that had eased tensions expired this week. Neither side moved to begin new talks. That left the oil market without the one development that could quickly remove the risk premium.

Ship traffic through the strait dropped to seven commodity vessels Thursday, half the previous day's total and far below normal. Before fighting began earlier this year, about one-fifth of global oil and gas supplies moved through the waterway. The major Gulf producers remain limited by the restricted passage. Iran’s own exports were already under pressure from a U.S. naval blockade. Extra oil moving through pipelines outside the Persian Gulf is not filling the gap.

President Trump said Friday the United States would begin an economic operation against Iran to force Tehran to abandon its nuclear program. Iran issued a warning of its own. That exchange does not signal a reopening of the shipping lane.

Late selling hit on reports that Iran had discussed ending the fighting from a position of strength. September WTI dipped, then recovered. One conversation about ending a fight is not the same as ending it. Buyers still own the supply side of this trade.

Gasoline and diesel futures also finished higher. September gasoline gained more than 8 cents a gallon. The gap between diesel futures and crude oil rose above $100 a barrel for the first time. U.S. refiners are making strong profits. The products side of the complex is bidding for barrels alongside the supply trade. The bid comes from more than one direction now.