Strait of Hormuz & Bab el-Mandeb Disruptions Keep Oil Above $98/bbl, Keeping Supply Risks Elevated

• Brent rose $4.52, or 4.8%, to $98.59/bbl and WTI gained 3.9% to $90.22, marking a fifth straight daily gain following Houthi attacks on Saudi oil tankers.
• Iran's Revolutionary Guards said the Strait of Hormuz was closed to tanker traffic without their coordination. Goldman Sachs estimates about 4 million bpd of the roughly 9 million bpd that transits Bab el-Mandeb is difficult to reroute, increasing supply disruption risk.
• European diesel margins reached a record $66.25/bbl, increasing fuel costs for diesel-powered mining haul fleets and off-grid power generation.
• US commercial crude inventories rose 2.0 million barrels to 411.7 million barrels but remained 6% below the five-year average, indicating the inventory build has yet to restore historical stock levels.
• Goldman Sachs targets Brent crude holding most of its recent gains through August as supply risks support prices. A retreat to $94/bbl, its pre-rally level, would indicate the market is removing the chokepoint risk premium.

Middle East Shipping Disruptions Push Brent to a Six-Week High as Markets Reprice Supply Risks

Brent crude rose $4.52, or 4.8%, to $98.59/bbl, its highest level since June 3, following reports that Houthi attacks on two Saudi oil tankers increased concerns over Middle East oil supply. WTI rose $3.39, or 3.9%, to $90.22, its highest level since June 11, extending its rally to a fifth consecutive day.

The latest price gains extended a rally that began before Thursday's attacks. EIA data show the Cushing spot price was $83.43/bbl on July 17, leaving WTI up about 8% in less than a week. Two China-bound supertankers carrying a combined 4 million barrels of Saudi crude were transiting Bab el-Mandeb on Thursday, highlighting the risk of disruption at a second major oil shipping chokepoint.

Blocked Chokepoints & Rerouted Crude Flows Reshape Global Oil Trade

Iran's Revolutionary Guards said an oil tanker caught fire after an explosion while navigating a mined route in the southern Strait of Hormuz near Oman, prompting two other vessels to turn back. The Guards said the Strait of Hormuz was closed to tanker traffic without their coordination. The US military conducted a 12th consecutive night of strikes on Iran, increasing the risk of further disruption to oil shipments through the Gulf.

The Houthis expanded their attacks to Saudi tankers in the Bab el-Mandeb Strait as part of their declared naval blockade. Goldman Sachs estimates about 4 million bpd of the roughly 9 million bpd that transits the strait would be difficult to reroute if both chokepoints remain disrupted. Some Chinese refiners increased purchases of sanctioned Russian crude despite narrowing discounts and are in talks to buy cheaper Iranian oil, indicating that Middle East supply disruptions are redirecting global crude trade flows.

Declining Oil Inventories & Slower SPR Releases Tighten Supply, Supporting Higher Prices

Pepperstone strategist Ahmad Assiri said crude prices should remain supported as markets increasingly price disruption at both the Strait of Hormuz and Bab el-Mandeb, increasing the risk of prolonged supply interruptions. US crude imports averaged 5.6 million bpd over the past four weeks, 11.4% below the same period last year. Lower import volumes leave the US with less flexibility to offset supply losses if disruptions to Middle East oil shipments continue.

Base case: Goldman Sachs expects oil prices to retain most of their recent gains through July and August as global inventories decline, Middle East production falls, summer demand remains firm, and Strategic Petroleum Reserve (SPR) releases slow.

Bear/bull case: A further chokepoint closure would disrupt the roughly 4 million bpd of Bab el-Mandeb oil flows that Goldman Sachs estimates would be difficult to reroute, potentially pushing Brent back toward its June 3 high above today's $98.59/bbl.

Record Diesel Margins Raise Operating Costs for Miners

Diesel-intensive industries face the largest increase in operating costs from higher fuel prices. European diesel margins reached a record $66.25/bbl on July 17, while US retail diesel prices rose by $0.338 to $5.134/gallon by July 20, up $1.322 from a year earlier. Because open-pit and remote-site mines depend on diesel-powered haul trucks and off-grid power generation, higher diesel prices increase unit operating costs and place the greatest pressure on higher-cost mining operations.

Goldman Sachs estimates that about 4 million bpd of oil flows through Bab el-Mandeb would be difficult to reroute if the chokepoint is disrupted, limiting shipping flexibility and increasing the risk of supply delays if disruptions extend across both regional trade routes.

Diesel costs will depend on whether disruptions to shipping through the Strait of Hormuz and Bab el-Mandeb continue, as prolonged supply constraints would keep fuel prices elevated. The next EIA Weekly Petroleum Status Report will show whether US retail diesel prices continue rising above $5.134/gallon, providing an early indication of whether higher transport costs are feeding through to end users.

$94 Brent Close Shifts Attention to Oil Inventories as the Next Price Driver

Brent above $98/bbl and WTI above $90/bbl reflect an ongoing risk premium tied to simultaneous disruption risks at the Strait of Hormuz and Bab el-Mandeb, rather than a one-off price spike. Higher crude prices support oil producers while increasing fuel costs for mining companies that rely on diesel-powered equipment and off-grid power generation.

A Brent close near $94/bbl, its level before Thursday's $4.52 rally, would indicate that markets are removing the chokepoint risk premium. Lower crude prices would gradually reduce diesel costs for mining companies, although retail fuel prices typically adjust after changes in crude oil prices.

The next key indicator is the EIA's Weekly Petroleum Status Report, published every Wednesday, which will show whether US commercial crude inventories continue narrowing the current 6% gap to the five-year average. A wider inventory deficit alongside a sustained Brent price above $98.59/bbl would indicate that physical oil supply remains constrained beyond the initial disruption, supporting higher oil prices.