Oil prices fall 1% but remain at a one-month high

Oil prices fell about 1% at settlement on Thursday, but remained near their highest levels since mid-June as tensions escalated between Iran and the United States after Tehran asked the Yemeni Houthi group to prepare to close the Bab al-Mandab strait in the Red Sea. Brent crude futures fell 72 cents, or 0.9%, to $84.23 a barrel at settlement, while U.S. West Texas Intermediate (WTI) crude futures dropped 65 cents, or 0.8%, to $78.95 a barrel. Both benchmarks had risen more than 1% earlier in the session to reach their intraday highs.

Ed Hayden-Privett, an oil research analyst at The Officials, said the decline reflected a cooling of market momentum after prices hit their highest level in a month earlier in the week, with traders adjusting their positions.

Brent crude futures settled on Wednesday at their highest since June 12, while WTI crude futures settled at their highest since June 15. A fragile ceasefire reached in June collapsed, raising fears of a return to full-scale conflict and disruption of energy flows through the Strait of Hormuz, which previously carried about one-fifth of global daily oil and liquefied natural gas (LNG) trade before the war erupted.

Three sources told Reuters on Thursday that Tehran had instructed the Houthi group in Yemen to prepare to close the Red Sea shipping lane in the event of a U.S. attack on Iran’s power infrastructure, posing a new and serious threat to global energy supplies.

Alex Hodges, director of energy market strategy at StoneX, said, “With the Strait of Hormuz already closed, this threat heightens the serious risk of disrupting the Middle East’s two main oil export routes simultaneously.”

Data from Kpler showed that total oil shipments through the Bab al-Mandab strait reached 7.4 million barrels per day in June, representing about 7% of global oil production, compared with 4.2 million barrels per day last year.

Wael Makarem, markets analyst at ICIS, said, “Disruptions in both the Hormuz and Bab al-Mandab straits at the same time could exacerbate pressure on supply chains, increase obstacles to tanker availability, and raise insurance premiums.”

The United States launched strikes on Iranian coastal missile defenses and sites on Wednesday after reimposing a naval blockade on ports of the Islamic Republic. Iran, meanwhile, threatened to further disrupt energy exports from the region, stating it was engaged in a “war of survival” with the United States. Iran and the U.S. exchanged intense fire on Thursday, keeping upward pressure on prices.

On the supply side, data from Kpler and a source familiar with the flows indicated that Iraqi crude oil shipments more than doubled to average around 1.2 million barrels per day in the first half of July, as exports accelerated after months of restricted shipments.