Oil Extends Five-Week High as Red Sea Blockade Threat and Kazakh Supply Disruption Add to Iran Conflict Concerns

Oil prices rose for a second consecutive session on Wednesday, with Brent crude gaining $1.00 (1.1%) to $92.01 per barrel and West Texas Intermediate (WTI) climbing 82 cents (1.0%) to $85.16 per barrel, as continued military tensions involving Iran and additional supply concerns supported the market.

Three developments are contributing to supply concerns:

Military tensions continue: U.S. forces carried out strikes on Iranian military targets for an 11th consecutive night after renewed exchanges between the two countries. According to Reuters, Iran targeted U.S. facilities in Bahrain, Kuwait, and Jordan on Tuesday, while Kuwaiti air defenses intercepted Iranian drones. Brent crude reached its highest level in five weeks before extending gains on Wednesday.

Potential disruption to Red Sea shipping: Yemen's Houthi movement said it would target vessels carrying Saudi crude through the Bab el-Mandeb Strait and announced a naval blockade involving Saudi Arabia. Reuters reported that three tankers bound for China and India changed course on Tuesday. According to ING, rerouting shipments could increase transportation time and freight costs, particularly as shipping patterns have already shifted following reduced traffic through the Strait of Hormuz.

Kazakh crude exports face uncertainty: The Caspian Pipeline Consortium suspended crude loadings from Kazakhstan on Monday after suspected drone strikes on its Black Sea export terminal. Ukraine has not commented on the incident. According to ING, an extended disruption could affect Kazakhstan's crude export flows and may have implications for upstream production if loading operations remain suspended.

Inventory data remains in focus

Data from the American Petroleum Institute (API) showed that U.S. crude oil and distillate inventories increased last week, while gasoline inventories declined. Official inventory figures from the U.S. Energy Information Administration (EIA), scheduled for release on Wednesday, are expected to provide additional insight into supply and demand conditions.

Market outlook

Market participants are expected to continue monitoring developments involving the Strait of Hormuz, the Bab el-Mandeb Strait, and Black Sea export infrastructure, as each remains relevant to global oil supply. Upcoming EIA inventory data may provide additional context for near-term market conditions alongside ongoing geopolitical developments.

Sources: Reuters; ING Commodity Strategists; American Petroleum Institute (API); U.S. Energy Information Administration (EIA).