Oil Markets React to Renewed Attacks Across the Gulf

Oil prices moved higher Monday after renewed fighting between the United States and Iran intensified concerns about the movement of crude oil and fuel supplies through the Strait of Hormuz. Prompt WTI futures were trading about $2.50 per barrel higher Monday morning, while broader oil prices gained more than 3% following another exchange of military strikes across the Gulf.

The latest escalation began with a third round of U.S. strikes against Iran, followed by Iranian missile and drone attacks targeting U.S. facilities and regional sites in Bahrain, Kuwait, Oman and Jordan. The U.S. military said it struck Iranian air defense systems, coastal radar installations, missile and drone capabilities, and small boats.

Additional explosions were reported around Bandar Abbas and Qeshm Island, near the Strait of Hormuz. In Kuwait, a drone attack on an offshore drilling platform injured one worker and caused material damage, according to the Kuwaiti military. These incidents have increased concerns that the conflict could directly affect energy infrastructure and commercial shipping.

Although some vessels continue to cross the strait, shipping activity has slowed considerably. MarineTraffic reported that vessel activity declined approximately 52% from July 10 through July 12 compared with the previous week. Kpler data showed that only six vessels crossed the strait Sunday, the lowest daily total in five weeks.

Among the vessels that exited the strait Sunday was a very large crude carrier transporting 2 million barrels of Iranian oil and another tanker carrying approximately 500,000 barrels of Kuwaiti petroleum products. Three empty tankers entered the Gulf to load oil. No liquefied natural gas tankers were visibly recorded entering the strait over the weekend.

U.S. officials said approximately 20 vessels had been escorted through the waterway during the previous 24 hours, although ship-tracking services showed significantly less visible activity. A U.S. Navy-led maritime center said an expanded southern route near Oman remained available for two-way traffic despite the severe security threat.

Iran, meanwhile, said regular shipping would not resume until U.S. military activity in the waterway ends. Iranian officials are also seeking an agreement with Oman to create a mechanism for managing traffic through the strait. Iran has proposed a permanent permit and fee system for vessels using the route, which carried roughly one-fifth of global oil and liquefied natural gas shipments before the war.

Outside the Gulf, other supply risks are also influencing the market. Ukrainian forces said they struck the Syzran refinery in Russia's Samara region, causing a fire, and also targeted tankers and ferries in the Sea of Azov. Russia reported intercepting Ukrainian drones, while Ukraine said it shot down Russian missiles and drones. Continued attacks on refineries and transportation infrastructure could further complicate global petroleum supplies.

Oil production indicators in North America were mixed. The U.S. crude oil rig count remained unchanged at 445 rigs for the week ending July 10. The Permian Basin lost five rigs, while the Eagle Ford, DJ-Niobrara and other producing areas added rigs. Overall, the U.S. oil rig count was 12 rigs higher than one month earlier and 21 rigs above last year's level. Canada's crude oil rig count fell by 12 to 118 rigs. Despite the weekly decline, the total remained six rigs above the same period last year.

Demand expectations are providing some resistance to the price rally. OPEC lowered its forecast for global oil demand growth in 2026 to 780,000 barrels per day, marking its third consecutive downward revision. OPEC still expects consumption to hold up better than the International Energy Agency, which forecasts that global demand will decline in 2026.

China may also become a more important source of demand in the coming months. The country is considering increasing oil imports after its May volumes fell to their lowest level since 2018. China has also instructed at least two major refineries to maintain or increase operating rates to protect domestic consumers if the Strait of Hormuz closes again.

Market positioning suggests that financial participants entered the latest escalation with a more cautious outlook. Managed money net length in crude oil decreased by 22,000 contracts through last Tuesday. WTI positions fell by 17,200 contracts as investors reduced long positions and added short positions. Net length also declined in Brent, heating oil and gasoline.

That positioning may have amplified Monday's price movement when the conflict intensified. Participants who had expected weaker prices may have been forced to adjust quickly after the renewed strikes and shipping disruptions increased the threat to supplies.

Slower demand growth and cautious market positioning could limit gains, while the expanding U.S.-Iran conflict and reduced shipping through the Strait of Hormuz continue to support a significant risk premium.

The market's direction will largely depend on whether shipping activity begins to normalize, whether the United States and Iran resume negotiations, and whether attacks spread further into the region's oil production and transportation infrastructure. Until there is greater clarity, energy prices are likely to remain highly sensitive to each new development in the Gulf.