Oil prices edged closer to the $95 mark on Wednesday, with Brent crude momentarily reaching $95.47 before settling near $94.28. West Texas Intermediate (WTI) followed suit, climbing to $87.03. Both benchmarks hit their highest levels in nearly six weeks, driven by supply concerns tied to maritime logistics rather than underlying scarcity.
The futures curve provided a clear signal to investors: prompt barrels for September delivery commanded a significant premium over later contracts. September Brent traded at a $9.49 premium above December, representing a roughly 10.1% difference from the front-month contract. Similarly, WTI's September premium stood at $8.38 above December, or about 9.6% of the September price. This backwardation—where near-term prices exceed longer-dated futures—underscores acute near-term transport risks.
The steep premium structure has direct implications for oil-equity investors. It favors short-term cash flow generation over long-term valuation inputs, as companies with immediate production exposure benefit from higher spot prices. However, the curve's shape suggests the market is pricing in a temporary disruption rather than a sustained shortage.
The immediate catalyst for the price surge was a shift in shipping patterns. Three tankers carrying Saudi crude altered course in the Red Sea, redirecting toward the Suez Canal after threats from Yemen's Houthi movement. This rerouting prompted Asian refiners to seek alternative supplies via Yanbu and opt for longer voyages around the Cape of Good Hope, effectively tying up tanker capacity and delaying deliveries.
Tim Waterer, chief market analyst at KCM Trade, highlighted the dual risks facing the energy market. “The energy market now has the dual-strait worry,” he said, referring to the Bab el-Mandeb and the Strait of Hormuz. Both chokepoints are critical for global oil flows, and any disruption could amplify price volatility.
Counterbalancing the bullish sentiment, U.S. crude inventories posted a surprise increase. Preliminary data from the American Petroleum Institute (API) showed a build of 2.603 million barrels for the week ending July 18, against analyst expectations of a 1.5 million-barrel draw. The 4.103 million-barrel miss did little to dampen prices, with Brent holding above $94. This divergence suggests that Wednesday's premium was largely driven by seaborne logistics risk rather than domestic supply-demand fundamentals.
The official U.S. Energy Information Administration (EIA) inventory report, scheduled for release at 16:30 CEST, will provide further clarity. A confirmed build could indicate softer refinery demand or temporary shifts in import schedules, potentially easing some of the upward pressure on prompt prices.
Looking ahead, the market faces two divergent scenarios. A confirmed stoppage at either the Bab el-Mandeb or the Strait of Hormuz could drive prompt prices significantly higher. Conversely, a ceasefire, resumption of normal tanker movements, or a major increase in official stockpiles could reverse the current premium structure, leading to a sharp correction in front-month futures.
