Middle East Tensions Keep Oil Prices Elevated as Strait of Hormuz Supply Risks Persist

Oil prices held near recent gains Monday as continued conflict in the Middle East and slow progress toward a Strait of Hormuz agreement kept global oil supply risks elevated. WTI traded near $82/bbl late Monday morning after gaining more than 5% last week, while Brent traded near $89/bbl. The lack of progress toward restoring normal shipping through the Strait has limited downward price movement, while the possibility of further regional escalation remains a bullish factor for crude oil prices and refined products.

Geopolitical tensions remained the primary market driver at the start of the week. Israeli forces struck Lebanon Sunday in retaliation for a Hezbollah attack earlier in the weekend, while U.S. Treasury Secretary Scott Bessent said the U.S. is preparing additional economic pressure against Iran. President Donald Trump also called for Iran to surrender and threatened military action against Oman if it interferes with U.S. objectives. Iran, meanwhile, warned that it could increase tensions in the Strait of Hormuz and beyond if the U.S. does not fully implement the interim peace agreement reached earlier this summer.

Monday had been viewed as a target date for Iran and the U.S. to reach a final agreement under the Memorandum of Understanding (MOU) signed in June, but negotiations remain unresolved. Iran's Foreign Ministry said discussions with Oman over a maritime transit plan are progressing slowly due to security complexities and the number of countries involved. The delay reduces the likelihood of a near-term return to unrestricted shipping through the Strait of Hormuz, one of the world's most important oil transportation corridors.

Physical crude flows reinforce the supply concerns. According to the latest data, just four commodity vessels passed through the Strait of Hormuz on Monday, following zero on Sunday and five on Saturday. Daily vessel traffic has now averaged fewer than seven ships for the last week, well below the pre-crisis average of more than 30 per day. Compared with 31 vessels during the previous weekend, this continued slump in transit numbers highlights the persistently elevated supply risks. Before the conflict began in February, the Strait handled roughly one-fifth of global oil and liquefied natural gas supplies.

Markets continue to place a premium on crude that can reach buyers without relying on the Strait of Hormuz. Saudi Aramco is now offering some Asian refiners crude located outside the Strait, while ADNOC sold at least 14 million barrels of spot crude to Asian refiners at premiums in its latest tender. Russia's ESPO crude for October delivery has also risen to a premium of roughly $2/bbl over ICE Brent, compared with a discount of about $1/bbl several weeks ago, reflecting tighter competition for barrels with less exposure to Middle East shipping risks.

Refined product markets showed a similar risk premium Monday, particularly for distillates, as concerns over Middle East oil supply disruptions continued to support diesel prices and jet fuel values. Gulf Coast prompt ULSD prices rose more than 10 cents/gal to roughly $4.33/gal as stronger futures combined with firmer regional differentials. Jet fuel increased nearly 9 cents/gal to about $3.79/gal. Gasoline was comparatively mixed, with prompt CBOB slipping slightly to around $3.01/gal while RBOB and regular gasoline posted modest gains. The stronger distillate response highlights how constrained global crude and product flows are having a greater near-term effect on diesel and jet fuel markets than gasoline.

For fuel buyers, the near-term outlook remains closely tied to physical shipping through the Strait of Hormuz. A credible agreement that restores unrestricted transit would be bearish for crude and refined product prices by reducing concerns over supply availability. Continued delays, lower vessel traffic, or additional attacks on regional energy infrastructure would keep conditions bullish and could push prices higher as buyers compete for barrels outside the affected shipping corridor.