Oil climbs 1.4% as Strait of Hormuz reopening stays uncertain

Brent crude rose 1.44% to $84.79 a barrel Monday as Iran said talks with Oman over new shipping lanes through the Strait of Hormuz were in final stages, while the U.S. must still meet other conditions before the waterway reopens.

"The structure of the Iran-Oman agreement in its current form and the power it yields to Iran is nothing that Trump can accept politically," said Bjarne Schieldrop, chief commodities analyst at SEB Research.

U.S. West Texas Intermediate climbed 1.08% to $79.29 a barrel. The gains came as OPEC delegates approved a final increase of 188,000 barrels a day for September, restoring all of the 1.65 million bpd cutback made in 2023, while U.S. crude production held at 13.804 million bpd, just below the record 13.862 million bpd.

The Strait of Hormuz carried about 20 percent of global oil and liquefied natural gas shipments before the war began in late February. Even with a deal, analysts warn restoration of safe shipping could take weeks or months because of mine-clearance, insurer confidence and operational readiness.

What the talks hinge on

Iran is demanding fees equivalent to 5 percent to 7 percent of cargo values from vessels passing through the strait, while Oman has proposed a levy of about 3 percent and Washington is seeking toll-free passage, according to a senior Iranian official and industry sources. Four industry sources told Reuters the arrangement would be difficult to implement because U.S. sanctions and restrictive insurance terms could complicate payments.

The conflicting signals have fueled sharp swings in market sentiment, said Vandana Hari, founder of Vanda Insights. On Thursday, Iran began considering legislation that would bar U.S. and Israeli vessels from the strait, and its semi-official Fars news agency reported that vessels belonging to any nation that has "caused damage" to Iran would be prohibited under the proposed deal, a restriction that would curb some oil exports from Gulf states.

Supply risks beyond Hormuz

Crude also drew support from attacks on Saudi shipping. Yemen's Houthi rebels said they targeted a Saudi oil tanker with a ballistic missile in the Gulf of Aden on Thursday and threatened to escalate strikes on Saudi tankers in the northern Red Sea. A senior Saudi official said the kingdom expected coordinated attacks by Iraqi militias from the north and the Houthis from the south, under the supervision of Iran's Islamic Revolutionary Guard Corps.

Ukraine has also intensified drone attacks on Russian oil infrastructure, striking refineries, tankers and pipelines at least 30 times in July, the second-highest monthly count since the war began in 2022. Russian crude-processing rates will average 3.51 million bpd in July, the lowest in 24 years, according to EA Analytics, deepening a nationwide gasoline shortage that has pushed the government to ban almost all fuel exports.

The last time the strait faced a prolonged closure threat, in 2019 after attacks on tankers, Brent spiked above $75 a barrel within weeks before retreating as the U.S. and Iran de-escalated. This time the stakes are higher: the waterway's closure has already removed roughly a fifth of global seaborne crude from the market, and a partial reopening that excludes U.S. and Israeli-linked vessels would still leave Gulf producers unable to reach key buyers.

For now, traders are pricing continued disruption. Baker Hughes reported the number of active U.S. oil rigs rose by three to 454 in the week ended Aug. 7, a 14-month high, as producers respond to elevated prices. If the Iran-Oman deal collapses, Brent could test the $90 level; if it holds and shipping resumes, prices face a sharp correction as OPEC's restored output meets ample Chinese inventories of about 1.2 billion barrels.

This article is for informational purposes only and does not constitute investment advice.