Oil prices extended their gains for a second session on Friday as fresh concerns over the Strait of Hormuz resurfaced after Iran, in coordination with Oman, proposed restricting the passage of vessels it considers hostile and imposing steep penalties on those violating the proposed rules.
Crude oil price on August 7
Brent crude futures climbed 99 cents, or 1.2%, to $83.48 a barrel while U.S. West Texas Intermediate crude rose 85 cents, or 1.1%, to $78.84 a barrel.
The latest gains came after oil settled more than $3 a barrel higher on Thursday, driven by reports that Iran was reviewing legislation to ban U.S. and Israeli vessels from transiting the Strait of Hormuz. The waterway has carried roughly one-fifth of global oil and liquefied natural gas shipments since before the war began at the end of February.
Also read: Proposed Hormuz passage deal not feasible for shipping industry, sources say
Earlier this week, crude prices had retreated as hopes grew for a potential resolution to the conflict. However, Brent moved back above the $80 mark on Thursday after briefly slipping below it for the first time since July 13.
According to Iran's Fars news agency, a parliamentary committee is examining a preliminary bill that would prohibit U.S., Israeli and other vessels classified as hostile from using the Strait of Hormuz. The proposal also seeks to levy fines of up to 20% of the cargo value on ships that violate the restrictions.
Separately, a senior Iranian official said Tehran is seeking transit fees of 5% to 7% of cargo value from ships using the strait. Oman is discussing fees of around 3%, while the United States wants no fees to be charged.
However, four industry sources said the proposed arrangement would be difficult to implement because of U.S. sanctions and insurance clauses that restrict such payments. Adding to geopolitical tensions, Yemen's Houthis said they launched missile and drone attacks on Saudi deployments in Marib and Hadramout on Thursday.
Meanwhile, US President Donald Trump told reporters on Thursday that he believed the war would end soon.
Read more: Iran warns Gulf allies of retaliation as Trump dials back strike threat, presses for a deal
What are analysts saying?
The trajectory of oil prices will largely depend on the duration of supply disruptions. JPMorgan estimates that every additional month of disruption could push Brent crude higher by about $7 to $8 a barrel. If disruptions continue for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.
Goldman Sachs has also warned that Brent could climb to $120 a barrel if shipping disruptions through the Strait of Hormuz, the world's most important oil transit route, persist.
That said, the brokerage's base case assumes tensions in the Middle East will eventually ease. Under that scenario, it expects Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year. However, it noted that the risks remain tilted to the upside because of the possibility of prolonged disruptions in the Strait of Hormuz and the Red Sea.
"The direction of our outlook is unchanged; the path and the timeline have shifted. We still expect oil to cool as we move into 2027, for three reasons: supply outside the conflict zone is expanding, with OPEC+ raising production targets, the UAE at record output and non-OPEC barrels responding to price," said Anindya Banerjee, Head of Commodity Research at Kotak Securities.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
