Oil Rises as Hormuz Tensions Offset OPEC+ Supply Growth

Key Moments

Prices Edge Higher on Renewed Strait of Hormuz Threats

Oil benchmarks advanced on Tuesday as new reports of attacks on commercial shipping in the Strait of Hormuz revived geopolitical risk in one of the world’s most critical maritime chokepoints.

By 04:41 ET (08:41 GMT), Brent crude futures, the global oil benchmark, were up 1.1% at $72.77 a barrel, while U.S. West Texas Intermediate (WTI) crude futures also climbed 1.1% to $69.30 a barrel.

Missile Attacks and Shipping Incident Heighten Security Fears

According to a report from Axios citing two U.S. officials, Iran’s military fired at least two missiles at commercial vessels transiting the Strait of Hormuz on Monday night. The reported action ended a week-long pause in attacks that had been in place under a U.S.-Iran understanding. Axios also said the U.S. was likely to respond with strikes on Iranian targets.

Separately, the U.K. Maritime Trade Operations agency said it had received a report from a tanker traveling south near the Omani coast that was struck by an unidentified projectile, which triggered a fire. Iran has not formally claimed responsibility for the incident. However, anonymous sources cited by Iranian state television indicated the target was a tanker transporting natural gas from Qatar.

Iran has said any vessel attempting to traverse the Strait of Hormuz must use routes approved by Tehran, adding that interference from the U.S. would be met with “a rapid and decisive action.”

Fragile Understanding Between Washington and Tehran Under Strain

The reported attacks followed the expiration of a one-week agreement between Washington and Tehran to pause hostilities in the Strait of Hormuz, Axios said. The end of that suspension has put at risk a memorandum of understanding concluded less than three weeks ago.

Crude prices had pulled back after the interim peace arrangement in June. Following the start of the conflict in late February, oil had previously surged above $110 a barrel at one stage, fueling fears of a sharp spike in global inflation.

Strait Flows, Regional Tensions, and Negotiation Sticking Points

Recent indicators have suggested that shipping flows are beginning to move again through the Strait of Hormuz, but it remains uncertain whether they have fully normalized. Control over this key waterway has become a central issue in broader peace discussions, alongside Iran’s nuclear program and hostilities between Israel and Tehran-backed Hezbollah militants in Lebanon.

Iran has demanded that it retain some authority over transit in the strait, which is described as a critical chokepoint for global shipping. The U.S. has rejected these demands.

“Oil prices are back to pre-conflict levels, even though the Strait of Hormuz is still only seeing a fraction of traffic go through. There is still supply-chain stress here,” analysts at Deutsche Bank including Henry Allen said in a note.

Rising Supply Caps Price Upside

Despite the renewed geopolitical risk, gains in crude were constrained by expectations for higher global supply.

The Organization of the Petroleum Exporting Countries and its allies, including Russia (OPEC+), agreed on Sunday to lift production targets by 188,000 barrels per day starting in August. This follows similar output increases implemented in June and July.

UAE Output Surge and Saudi Price Cuts Underscore Competition

The United Arab Emirates, which abandoned OPEC+ output quotas in May, said it raised crude production in June to more than 3.8 million barrels per day, surpassing levels seen before the onset of the Iran war.

Saudi Aramco further signaled growing competition in export markets by reducing the August official selling price (OSP) for its flagship Arab Light crude for Asian customers to a discount versus the regional benchmark. It is the first time since 2020 that the Arab Light OSP for Asia has been set at a discount, reflecting intensifying rivalry for market share as Gulf exports recover.

Market Drivers at a Glance