WTI crude surges 6.2% to $92 as Iran conflict tightens supply

Crude oil prices surged to multi-month highs on July 23 as renewed hostilities between the U.S. and Iran threatened to choke off shipments through the Strait of Hormuz.

WTI crude jumped 6.2% to $92.19 a barrel on July 23, the highest in more than two months, as the collapse of a U.S.-Iran ceasefire reignited fears of a prolonged supply disruption through the Strait of Hormuz. Abu Dhabi's Murban benchmark surged 20.7% to $108 a barrel, reflecting the acute supply shock hitting Middle East crude grades.

"The market is pricing in a worst-case scenario where the strait remains effectively closed for weeks, not days," said Omar Tariq, senior energy analyst at Edgen. "Every failed ceasefire resets the risk premium higher."

Oil flows through the Strait of Hormuz have slumped to about 5.5 million barrels a day from 9.4 million before the conflict began, according to vessel-tracking data compiled by Bloomberg, Kpler and Vortexa. The strait handles roughly 20% of the world's oil supply. NYMEX gasoline futures rose to $3.50 a gallon, while heating oil reached $4.34 a gallon.

The rally raises the prospect of $100-plus oil persisting through the third quarter, squeezing consumers already paying above $4 a gallon at the pump nationally. The U.S. strategic petroleum reserve, at its lowest level since 1983, offers limited cushion, while OPEC+ plans to boost output by 188,000 bpd in August may prove difficult to execute with Middle East producers caught in the conflict.

The latest escalation followed President Donald Trump's reimposition of a naval blockade on July 14 after another ceasefire negotiation collapsed. The Wall Street Journal reported that Trump discussed the potential seizure of Iran's Kharg Island, the country's main oil export terminal, as U.S. forces struck bridges to cut supply routes to an Iranian port city used to support attacks on shipping.

The supply shock comes as global crude markets were already tightening. Russian crude production fell to 8.93 million bpd in June, the lowest in 2.5 years, as Ukrainian drone attacks damaged at least 24 of Russia's 34 largest refineries. The International Energy Agency warned on June 17 that the Iran war's impact on global oil demand would be deeper than previously anticipated, forecasting a decline of 1.1 million bpd this year.

Refiners and consumers feel the squeeze

The surge in crude prices has cascaded through the energy complex. The national average for regular gasoline climbed above $4 a gallon on July 20 for the first time since mid-June, according to AAA. Diesel prices have also risen, with the national average reaching $5.14 a gallon. The crack spread — the difference between crude oil and refined product prices — hit a record high on July 17, potentially encouraging refiners to boost crude purchases. But higher feedstock costs are squeezing margins for pure-play refineries that lack the integrated upstream operations of majors like ExxonMobil and Chevron.

Supply routes face prolonged disruption

The International Maritime Organization warned on July 16 that it is too dangerous to cross the Strait of Hormuz, and visible transit has fallen sharply. Chevron has signed on to invest in pipelines and other infrastructure to bypass the strait, though such projects take years to complete. The last time oil prices traded above $90 for an extended period was in mid-2022 following Russia's invasion of Ukraine, when WTI briefly touched $123. The current crisis removes a larger share of global supply than any single producer, as the strait handles about 20% of the world's oil.

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