Crude oil prices jumped sharply on Friday after US President Donald Trump warned that his patience with Iran was running out, putting the fragile ceasefire and Strait of Hormuz shipping back at the centre of the market's attention.
July WTI crude futures climbed to around $100.54 a barrel, up roughly 3.7% on the day, while July Brent rose to $108.68, up nearly 2%. On a weekly basis, WTI is on course for a gain of close to 10% and Brent around 8%.
Trump and Chinese President Xi Jinping reportedly agreed at this week's Beijing meetings that Iran should not develop nuclear weapons and that the Strait of Hormuz must fully reopen to shipping. Trump then added a sharper line, saying his patience with Tehran was wearing thin.
The market read that as a clear warning rather than diplomatic language. Two days of cautious optimism about traffic resuming through the Strait unwound in a single session.
The numbers explain the nervousness. According to Iranian state media and shipping data, only around 10 to 30 vessels have been moving through the Strait in recent 24-hour windows. Before the conflict, the daily average was about 140 ships.
Roughly one-fifth of the world's seaborne oil passes through this narrow waterway. Anything that restricts that flow tends to feed directly into crude prices, which is exactly what is happening now.
The latest US Energy Information Administration data showed a larger-than-expected crude inventory draw, with stocks at the Cushing hub falling sharply. Gasoline inventories also declined as buyers shifted away from Gulf supply routes.
Strong US exports kept domestic stockpiles from rebuilding even as production held firm, and refiners stayed at high utilisation rates ahead of the summer driving season. The result is a market with very little spare supply to absorb further disruption.
The International Energy Agency has warned that supply deficits could emerge if the Gulf disruption continues, with inventories no longer offering much of a buffer heading into peak demand.
OPEC, meanwhile, has trimmed its demand growth forecast, noting that prices near $100 a barrel are starting to weigh on consumers and businesses. Production increases from member countries are not coming through fast enough to offset the supply gap created by reduced Strait traffic.
Higher oil prices also tend to lift the US dollar and weigh on risk assets, so the move is being felt well beyond the energy complex.
The oil market is pricing two things at once: the risk that the Strait of Hormuz stays restricted into the summer, and the reality that global inventories no longer have much room to absorb shocks. Until there is a clear de-escalation, volatility around the $100 level on WTI is likely to remain elevated.
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