Crude Oil
Disrupted Gulf flows sustain crude risk premium as supply risks grow
Crude markets remained centered on developments in the Persian Gulf this week as the conflict with Iran continues to disrupt flows through the Strait of Hormuz, reshaping both physical balances and forward expectations. The WTI prompt-month contract settled just short of $100/bbl on Friday, reflecting a market that continues to price a meaningful geopolitical risk premium tied to uncertainty surrounding the war and supply risks.
Supply disruptions remained the dominant driver, with transit through the Strait effectively halted. Gulf producers have responded by shutting in meaningful volumes of production as storage fills and export routes remain limited, reinforcing a tightening physical backdrop. At the same time, the path toward resolution remains highly uncertain. Diplomatic efforts have repeatedly stalled, with Iran rejecting ceasefire frameworks while maintaining conditions tied to sovereignty over the Strait and broader security guarantees. Military dynamics continue to evolve, with the US evaluating additional troop deployments and extending key decision timelines, suggesting the disruption could persist further.
The extended losses in the Gulf have begun to feed into the deferred part of the curve, which has been reprised higher since the start of Operation Epic Fury. The waiver of sanctions on Russian and Iranian barrels at sea has accelerated the drawdown of floating inventories that had previously acted as a bearish overhang on the market. Alongside this, the need to refill strategic reserves and expectations for extended refinery runs have added support to longer-dated pricing, reinforcing strength further out on the curve even as near-term volatility remains elevated.
On the supply response side, US shale remains notably restrained. The latest Dallas Fed Energy Survey shows business activity returning to expansion, but drilling plans remain largely unchanged, particularly among larger operators who account for most of production. This suggests that higher prices have not triggered a broad-based increase in drilling activity, limiting the ability of US supply to offset global disruptions.
Looking ahead, the trajectory of crude markets will hinge on the pace at which flows through the Strait can recover and whether shut in production can return smoothly. Even in a de-escalation scenario, the normalization of shipping and upstream operations is likely to be gradual, keeping near-term balances tight. In light of mounting supply losses and elevated uncertainty, AEGIS has shifted its outlook from bearish to neutral.