Oil prices advanced on Tuesday as renewed security concerns in the Middle East outweighed expectations of higher global crude supply, with investors closely monitoring developments in the Strait of Hormuz alongside fresh production increases from OPEC and its allies.
As at the time of writing (08:27 a.m. WAT), Brent crude traded at $72.92 per barrel, up 1.29%, while US West Texas Intermediate (WTI) crude climbed 1.21% to $69.38 per barrel, extending gains after both benchmarks had retreated to levels seen before the Iran conflict.
The latest rally comes as the market reassesses the pace of oil supply recovery following the temporary easing of tensions between the United States and Iran. Although diplomatic efforts have reduced immediate fears of a prolonged disruption to Gulf exports, fresh security incidents in the Strait of Hormuz have reminded traders that geopolitical risks remain firmly in play.
Market sentiment was unsettled after reports that Iran's Revolutionary Guards fired missiles at commercial vessels transiting the Strait of Hormuz, damaging two ships without causing casualties. The incident reinforced concerns over the security of the world's most important oil shipping route, even as more tankers resumed operations through the strategic waterway.
Analysts say the market is now balancing two opposing forces. On one hand, recovering Gulf exports and higher production from major oil producers are easing supply concerns. On the other, fragile security conditions and uncertainty surrounding US-Iran negotiations continue to support crude prices by maintaining a geopolitical risk premium.
Tim Waterer, Chief Market Analyst at KCM Trade, said the recovery in oil supply has reduced immediate market anxiety, but investors remain reluctant to assume lasting stability given the unpredictable nature of relations between Washington and Tehran. He added that attention is increasingly shifting towards demand, particularly from China, which is expected to play a decisive role in determining the next direction of crude prices.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and its allies agreed to raise production targets by another 188,000 barrels per day from August, adding to earlier output increases for June and July. At the same time, the United Arab Emirates lifted crude production above 3.8 million barrels per day in June its highest level since April 2020 while Saudi Arabia slashed the August official selling price of its flagship Arab Light crude for Asian buyers by the largest margin in more than two decades to defend market share.
Despite the additional supply, the recovery in tanker movements through the Strait of Hormuz remains slower than expected, with shipping companies maintaining a cautious approach amid lingering security concerns. As a result, oil traders are expected to remain focused on geopolitical developments, the pace of Gulf export recovery and demand signals from major consuming economies as they assess the market's next direction.