Oil Prices Surge Toward $100 Amid Hormuz Tensions Despite US Inventory Build

Crude oil prices are on track for a five per cent weekly gain, driven by escalating geopolitical tensions in the Middle East that have pushed benchmarks closer to the $100 per barrel threshold. The rally comes as hopes of a negotiated settlement between the United States and Iran have been dashed once again, with Tehran intensifying attacks on vessels attempting to transit the Strait of Hormuz. Simultaneously, the White House has reinforced its maritime blockade on Iranian crude exports. Although an unusually large build in US crude inventories has provided some counterweight to the bullish sentiment, analysts suggest that if the current pace of naval hostilities continues into the second half of August, ICE Brent could rise significantly from its current level of $88 per barrel.

The disruption to global supply chains is evident in shifting forecasts and market behaviours. OPEC has cut its forecast for 2026 global oil demand growth to 580,000 barrels a day, marking the fourth consecutive month of downward revisions amidst the Hormuz crisis. This stands in sharp contrast to the International Energy Agency’s projection of a 1.6 million barrel-a-day decline in demand. The IEA predicts that global supply will fall by 4.3 million barrels a day in 2026, widening the third-quarter deficit to 1.8 million barrels a day despite record-high fuel prices causing unprecedented demand destruction.

Logistical challenges are further complicating trade flows. Saudi Aramco is negotiating September supplies with Asian buyers on an individual basis as shipowners avoid both the Strait of Hormuz and the Red Sea. This uncertainty persists even though formula prices have fallen to a six-year low. Consequently, while Saudi Arabia increased output by more than one million barrels a day to 8.2 million in July, only an incremental 200,000 barrels reached external markets. Disruptions at Bab el-Mandeb have forced Riyadh to boost domestic inventories to their highest levels since at least 2016.

Elsewhere, the conflict has impacted broader energy infrastructure and exports. Ukraine has reportedly proposed a truce on attacks against civilian vessels and ports in the Black Sea, as escalating strikes have reduced Ukrainian grain shipments by 76 per cent year-on-year so far in August, raising fears of a global food supply shock. In Russia, seaborne refined product exports fell by a third month-on-month in July to 3.93 million tonnes, halving from levels seen a year ago due to lower refinery runs and export bans. A Ukrainian drone strike has also forced the closure of the Orsk refinery, which has a capacity of 115,000 barrels a day, for up to six months.

Environmental and regulatory issues continue to surface globally. An oil spill from the sanctioned Caroline Bezengi tanker, following a drone attack in June, has spread across more than 2,000 square kilometres and reached Oman’s coastline, threatening a marine reserve. Cleanup efforts are hampered by insurance gaps and ‘act of war’ clauses. In Qatar, QatarEnergy has extended its force majeure declaration to India through August, having delivered only two cargoes since the conflict began. This has caused Qatar’s share of Indian LNG imports to drop from over 45 per cent in 2025 to 12 per cent this year.

In other market developments, a tax bill required to advance the $50 billion Alaska LNG export project stalled in the state legislature, unsettling investors. Meanwhile, Argentina has doubled its estimate of technically recoverable shale oil in the Vaca Muerta play to 30.1 billion barrels, supporting plans to increase output and exports. Nigeria’s President Bola Tinubu approved a new tax incentive framework for deepwater projects to attract investment. In Europe, an explosion at Gunvor’s Rotterdam terminal resulted in one fatality and several injuries, while a power failure halted operations at ExxonMobil’s nearby refinery.