Brent crude is approaching $89 per barrel as renewed uncertainty over the Strait of Hormuz raises concerns about prolonged disruptions to global oil flows and revives the possibility of prices climbing towards $100 per barrel.
The latest rally comes after crude prices retreated sharply last week as markets anticipated progress in US-Iran negotiations and the possible restoration of normal shipping through the strategic waterway. Those expectations have weakened, with tensions around Hormuz resurfacing and Iranian crude exports showing signs of further disruption.
Brent crude was trading at $88.99 per barrel, while the renewed movement higher reflected growing concerns that the Strait of Hormuz could remain severely restricted.
The physical oil market is also showing signs of tightening. Iranian crude loadings have fallen close to zero in August, while no very large crude carrier was recorded loading at Iranian terminals during the first 10 days of the month.
Iranian crude held in floating storage has remained around 40 million barrels, roughly twice the level recorded in the first weeks of July when shipping through the region was less restricted.
The disruption is occurring alongside a significant drawdown in Chinese crude inventories, potentially creating another source of demand for Iranian and Russian barrels.
Crude inventories in China's Shandong province fell by approximately 35 million barrels in July, equivalent to a draw of about 1.1 million barrels per day. The decline could prompt China's independent refiners, known as teapots, to increase purchases in the coming weeks as they seek to replenish stocks.
Chinese independent refinery utilisation is currently around 50 per cent, following stronger operating rates during June and July as Beijing gradually reopened product-export channels.
The combination of lower Iranian loadings, tighter visible inventories and the prospect of increased Chinese buying has heightened the market's sensitivity to further disruptions around Hormuz.
The waterway remains one of the world's most important energy corridors, making any sustained restriction a potential threat to global crude and refined-product supplies.
The security risks have also extended beyond the immediate Hormuz area.
Three sailors were reportedly killed in a suspected Houthi attack on an Egyptian-owned cargo vessel in the Bab el-Mandeb Strait. Separately, the Pakistani-flagged container vessel Vela Nova was struck by a US helicopter missile in the Gulf of Oman, adding to concerns over maritime security around the region's major shipping routes.
The Houthis have also claimed responsibility for an attack on Saudi Aramco's 400,000-barrel-per-day Jazan refinery. The facility has remained shut following the incident, creating an additional concern for regional refined-product supplies.
Meanwhile, OPEC production has recovered from earlier lows. Reuters data put output from OPEC members at 19.9 million barrels per day, an increase of 1.17 million barrels per day, with Iraq and Kuwait accounting for much of the increase as Gulf producers restored some production.
The additional supply could help offset part of the market's geopolitical concerns, although increased production does not immediately resolve restrictions on shipping or disruptions to refining infrastructure.
Energy infrastructure elsewhere is also coming under pressure.
In Libya, a fuel-storage tank at the 120,000-barrel-per-day Zawiya refinery caught fire after a drone damaged another tank two days earlier. Libya's National Oil Corporation declared an emergency, raising the possibility of further operational disruptions.
In Europe, extremely low water levels on the Rhine have disrupted the movement of refined petroleum products. Water levels at the Kaub section fell to 17 centimetres and could decline to around 4 centimetres by mid-August, affecting several ports in Germany and Switzerland.
Japan is also considering measures to help refiners offset higher transportation costs as they diversify crude and naphtha purchases away from the Middle East, highlighting the growing effort among major consumers to reduce exposure to Hormuz.
The energy disruption is beginning to feed into other commodity markets. The FAO food price index rose to 131.1 points in July, its highest level since January 2023. Wheat prices increased 6 per cent from June, while higher crude costs contributed to movements in vegetable oil and sugar prices.
Aluminium prices have also strengthened, with London Metal Exchange aluminium reaching $3,350 per tonne, a seven-week high and its seventh consecutive session of gains. The Middle East accounts for almost 9 per cent of global aluminium production capacity, leaving the sector exposed to prolonged regional disruptions.
Energy companies are meanwhile responding by expanding infrastructure and securing additional transportation capacity.
Phillips 66, Kinder Morgan and HF Sinclair agreed to develop the $5 billion Western Gateway pipeline system, which is expected to provide a major refined-product route from St. Louis, Missouri, to California.
BP agreed to acquire a 70 per cent interest in Woodside's Calypso deepwater project in Trinidad and Tobago, giving it full ownership of the 3.5 trillion cubic feet resource.
Italy's Eni has entered a strategic partnership with US-based APA for Block 6 offshore Uruguay, with Eni expected to finance most of the planned 2027 exploration programme.
Maurel et Prom also agreed to acquire Gran Tierra Energy's South American portfolio, largely covering assets in Colombia and Ecuador, for $1.33 billion.
In shipping, UAE national oil company ADNOC purchased six VLCCs and five VLGCs for $1.3 billion, expanding its tanker fleet as the company manages continued uncertainty around Hormuz.
ADNOC is also exploring a 9.6 million-tonne-per-year LNG export terminal in Fujairah, connected by pipeline to western UAE gas fields. The proposed facility would provide an alternative export route and reduce the country's dependence on Hormuz for LNG shipments.
The latest market movement highlights the competing forces currently shaping oil prices. Rising production from OPEC members is providing additional supply, but geopolitical tensions and restrictions on major shipping routes continue to create significant upside risks.
With Brent now nearing $89 per barrel, the market is once again looking towards the $100 threshold. A prolonged closure of the Strait of Hormuz, a further collapse in Iranian exports or additional attacks on regional energy infrastructure could accelerate that move.
The immediate outlook will depend largely on developments around Hormuz, the volume of Iranian crude reaching buyers and whether diplomatic efforts can restore confidence in the security and continuity of regional oil shipments.