Oil prices break $90 again, but biggest threat is still hiding in plain sight

Oil prices rose above $90 a barrel on Thursday as renewed US-Iran attacks revived concerns about supplies moving through the Middle East’s fragile shipping network.

Brent crude gained 1.2% to $91.80 at 0812 GMT on July 30 after settling nearly 8% higher on Wednesday.

West Texas Intermediate advanced to $84.85 following US strikes on Iranian military targets after Tehran fired missiles at American forces.

Tankers have not stopped moving. A Qatar-linked liquefied-natural-gas vessel left Hormuz with Iranian permission.

Yet the market’s safeguards are weakening as Red Sea risks rise and inventories fall.

Market’s escape route becomes another danger zone

Saudi Arabia has redirected much of its crude through pipelines towards the Red Sea coast, reducing dependence on the Strait of Hormuz.

Those barrels must then pass through Bab el-Mandeb, transit the Suez system or take the longer route around Africa.

That fallback is under pressure. Yemen’s Houthis have attacked Saudi tankers and energy infrastructure, declared a blockade against the kingdom and considered charging commercial vessels using the southern Red Sea.

Traffic has fallen as operators reassess security and insurance.

“It just gets harder and harder,” Qamar Energy chief executive Robin Mills told Vox. Mills said Saudi Arabia could probably move required volumes through the Suez route, but capacity was tight and an expanded Houthi campaign would create a larger problem.

Washington Institute maritime specialist Noam Raydan offered a starker warning to Vox: “We know that they can sink ships.”

Operators remember earlier drone, missile, boarding and hijacking attacks, making voluntary diversions possible without a formal closure.

That is the hidden threat. Bab el-Mandeb does not need to shut completely to reduce effective export capacity.

Higher insurance costs, hesitant crews and longer voyages can remove the flexibility that has restrained oil prices.

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Falling inventories leave little room for error

US commercial crude inventories fell by 7.2 million barrels to 404.5 million in the week ended July 24, their lowest level since 2018 and about 7% below the five-year seasonal average.

Refineries operated at 97.2% of capacity, leaving limited scope to raise processing if another disruption creates shortages.

Gasoline stocks were around 6% below normal, while the Strategic Petroleum Reserve declined further.

Commodity Context founder Rory Johnston told the Financial Times that crude and petrol inventories were at “precariously low” levels.

Falling stocks remove the cushion available when shipments arrive late or refineries struggle to secure suitable barrels.

The next shock could therefore appear through petrol, diesel or aviation fuel rather than crude alone.

Duration may matter more than the next strike

The next move will depend heavily on how long disruption persists.

JPMorgan analysts estimated that each additional month of lost supply could add about $7 to $8 a barrel to Brent, potentially lifting its monthly average to roughly $114 after three months.

A brief interruption may keep Brent around the low-to-mid $90s. Prolonged restrictions, damage to Gulf infrastructure or a wider Houthi campaign could push prices materially higher.

Conversely, successful diplomacy and improving tanker flows could strip away the renewed risk premium.

The US Energy Information Administration expects Middle East production and trade to recover gradually, inventories to begin rebuilding in the fourth quarter and Brent to average $70 then.