WTI Breaks $100—and This Rally Has Legs

For months, crude oil prices have been constrained by reports of improving tanker traffic in the Strait of Hormuz. Even after the June ceasefire between Iran and the United States collapsed, tankers moving in and out of Hormuz have been moving at rates higher than in the spring. This has now changed with the latest escalation in the chokepoint, sending Brent crude above $100 per barrel on Wednesday morning and WTI crude breaking $100 on Thursday morning.

For months, analysts have warned that Brent crude could surge to over $100 per barrel and stay there for an extended period. On Wednesday, Brent finally broke through that threshold for the first time since late July, as escalating fighting between U.S. and Iranian forces intensified concerns about oil flows from the region. The rally added another $4 to Brent just a day later, while WTI broke the key resistance point as well.

Reports of recovering crude oil flows out of the Persian Gulf were the main factor that kept a lid on prices. Recent data show average daily outflows in early August ran between 6 and 8 million barrels. Some, like Rystad Energy, put the average daily even higher, at between 8 and 9 million barrels as of late August. Yet that was before fighting between U.S. and Iranian forces resumed, slashing the daily flows to below 2 million barrels daily. The moving average stood at some 4 to 5 million barrels, again according to Rystad Energy, as quoted by Reuters earlier this week. Per Kpler, not a single very large crude carrier has exited the strait since September 2, the Reuters report also noted.

Meanwhile, fighting escalated this week, with the United States reporting it had destroyed five Iranian tankers in the Persian Gulf. In response, Iran attacked a U.S. base in Jordan. Brent crude jumped through $100 per barrel on Wednesday as neither side appeared willing to de-escalate.

Still, the worst predictions about oil prices have not yet materialized. The reason for this is that Middle Eastern producers have found alternative channels to send their crude abroad. In most cases, these are pipelines that carry the crude to ports outside the Strait of Hormuz. For the UAE, it is a pipeline to the port of Fujairah, right outside Hormuz. For Iraq, it is the pipeline that carries crude to Turkey and the Mediterranean coast. For Saudi Arabia, it was the East-West pipeline where flows were reversed to carry the crude to the Red Sea port of Yanbu—close to the Yemeni Houthis.