Iran Tensons Flare-Up, But Crude Moves Lower

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Note: This story has been updated to reflect a retaliatory strike by the U.S. on Iran.

Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

Crude oil prices moved lower on Friday even after a suspected Iranian drone hit a vessel off the coast of Oman. One analyst said the market focus has shifted from what's missing to what's coming.

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Not Part of the Deal, Iran Says

Iran's sovereign claims to its territorial waters must be considered when charting safe passage through the Strait of Hormuz, Iran's deputy foreign minister said Friday.

Industrial Info Resources has been monitoring developments in the Middle East since fighting began with joint U.S.-Israeli airstrikes on Iran in late February. The Kuwait National Petroleum Company restarted some units at its Mina Abdulla Refinery that were impacted by regional fighting, , highlighting the ongoing supply-side issues stemming from the conflict.

The region remains tense. Late Thursday, the United Kingdom Maritime Trade Operations Center reported an incident some 7.5 nautical miles southeast of Oman.

"A cargo vessel has been hit on the starboard side by an unknown projectile, causing damage to the bridge," the agency stated.

That was the first such incident since June 21, when a vessel was approached by an armed craft off the coast of Yemen, where the Houthi rebel group enjoys Iranian support. The most recent attack off Oman, meanwhile, was the first incident since the United States and Iran signed a 14-point memorandum of understanding that started the clock for more formal negotiations. The U.S. later Friday struck Iran in retaliation of what it called a violation of the agreement.

Point 5 of the agreement states that Iran would coordinate with Oman to "define the future administration and maritime services" for regional waters. On Friday, Iran's Deputy Foreign Minister Kazem Gharibabadi said any transit through the Strait must adhere to that part of the arrangement.

"Safe passage through the Strait of Hormuz cannot be guaranteed under ambiguous arrangements, parallel routes or decision-making that does not take Iran's role as a coastal state into account," Gharibabadi stated on the social media platform X.

The U.N.-backed International Maritime Organization (IMO) started a voluntary escort service through Iranian or Omani waters, with U.S. oversight, in late June. After the incident Thursday off Oman, the agency's secretary-general said that effort was suspended.

And Yet Crude Oil Moves Lower?

Even with the fragile nature of the cease-fire arrangement, crude oil prices continued their retreat. The price for Brent crude oil, the global benchmark, was down heavily in early trading Friday to move near $72 per barrel, close to pre-war levels.

"Instead of focusing on missing barrels, traders suddenly began pricing the return of stranded crude cargoes, recovering Gulf exports and improving tanker traffic through one of the world's most important shipping lanes," Ole Hanson, the head of commodity strategy at Saxo Bank, explained in a Friday newsletter. "The result has been a sharp reversal in oil prices despite global inventories remaining historically depleted."

Supply-side buffers are indeed scarce. The U.S. Energy Department said the amount of crude oil in the Strategic Petroleum Reserve declined by 2.6% week-on-week over the seven-day period ending June 19 to 331.2 million barrels, less than half of its full capacity.

By the Numbers

• $72 dollar Brent on Friday, even after a vessel attack
• 331.2 million barrels is all that's left in the U.S. SPR

Key Takeaways

• Markets brush off vessel attack in Persian Gulf
• Supply-side pressures remain

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 trillion (USD).