Markets
Brent Is Back Above $110 After at Least 18 Tanker Attacks in Two Weeks. Flows Out of the Gulf Have Fallen to 8.5 Million Barrels a Day
Brent crude rose above $110 a barrel early on October 20 and traded at $109.68 at the time of Oilprice.com's report, with WTI at $98.55, after Kpler data cited by Reuters counted at least 18 attacks on tankers in the Strait of Hormuz over two weeks and put daily flows out of the Persian Gulf at 8.5 million barrels, down from more than 20 million two weeks earlier. The sanctions waiver that had pushed Brent to $107.92 on Monday morning lasted one session.
The oil market had one day to enjoy the sanctions waiver. Brent crude, which fell to $107.92 in Monday's Asian session after President Trump waived the Graham Act sanctions and tariffs on buyers of Russian oil, climbed back through $110 a barrel early on Tuesday, October 20, and was trading at $109.68 at the time of Oilprice.com's report at 04:56 UTC, with West Texas Intermediate at $98.55 after a brief move above $100. Friday's settlement of $109.86 had been Brent's highest since May; WTI had gained 10.4% last week.
The reason is the Strait of Hormuz. Reuters, citing data from the analytics firm Kpler, counted at least 18 attacks on tankers in the waterway over the past two weeks, attributed to Iranian strikes; HDFC Sky, also citing Kpler, counted at least 10 confirmed incidents involving commercial vessels in the week to Friday, and Trading Economics reported three tankers damaged over the weekend. Kpler put the average daily flow of oil out of the Persian Gulf at 8.5 million barrels in the seven days to Friday, against more than 20 million barrels a day two weeks earlier, after exports had recovered to pre-war levels earlier in the month. Iran's Revolutionary Guard says vessels need its permission to pass. The Houthis struck energy infrastructure, airports and military sites in Saudi Arabia again over the weekend.
Diplomacy is not pricing in a quick fix. Iran's seven-point proposal for reopening the strait, presented by foreign minister Abbas Araghchi on Sunday, requires an end to the US blockade of Iranian ports and to sanctions on Iranian oil; a Polymarket contract on Sunday put the odds of no Hormuz agreement by October 23 at about 96%. The Russian waiver, by contrast, is a supply story for refined products rather than crude: Russia is to send more than 300,000 tonnes of diesel to the US initially, with more in November, into a market where NBC News says US diesel prices are up almost 70% since the Iran war began in February. Secretary of State Rubio said the review of the waiver could take up to 60 days.
ING's commodities team, Warren Patterson and Ewa Manthey, wrote on Monday that oil "remains well-supported amid ongoing tensions in the Middle East despite relatively strong Persian Gulf flows," which they said "suggests the market is pricing in a significant risk premium." Their view is that the premium would gradually vanish if flows stayed stable; the Kpler count says they have not. Mott Capital's Michael Kramer, writing for CMC Markets a week earlier, put resistance at $111 to $113 and said a sustained break above $113 could open a path toward $120. The next scheduled inputs are the EIA's weekly inventory report on Wednesday, after a 8.56 million-barrel draw in US crude stocks in the week to October 9, and the IEA's emergency release of 20 million barrels of diesel announced last week.
For the rest of the market, $110 Brent is the inflation input that keeps the 10-year Treasury above 5% and the Fed's December hike odds above 90%. Monday's equity rebound happened while oil was at $108; Tuesday's Asian sell-off happened with it at $110. The two numbers are not independent, and the tanker count is now the more important of the two.