Oil Prices Slip After Monday’s Volatile Rally
Oil prices edged lower on Tuesday after gaining more than 1% in the previous session.
Investors continued to assess the escalating conflict between the United States and Iran. Markets also focused on the potential threat to Middle East energy supplies from a Houthi naval blockade targeting Saudi Arabia.
At 02:49 ET, or 06:49 GMT, September Brent crude futures fell 0.9% to $88.40 per barrel.
West Texas Intermediate crude futures also declined 0.9%, trading at approximately $82.50 per barrel.
Both oil benchmarks had closed nearly 1% higher on Monday following a session marked by sharp price swings.
Geopolitical Uncertainty Drives Oil Volatility
Traders remained cautious as geopolitical developments continued to change rapidly.
The oil market has moved between optimism over possible diplomatic progress and concerns that the conflict could disrupt production or shipping across the Middle East.
Reports of a possible ceasefire proposal between Washington and Tehran briefly pushed oil prices lower on Monday.
However, crude recovered after Yemen’s Iran-backed Houthi movement announced a maritime blockade aimed at Saudi Arabia.
Houthi Blockade Threatens Key Shipping Route
The proposed blockade could disrupt vessels passing through the Bab al-Mandeb Strait.
The strategic waterway connects the Red Sea with the Gulf of Aden and is one of the world’s most important maritime chokepoints.
Approximately 12% of global trade passes through the route, including substantial volumes of oil and other energy products.
A successful blockade could force some ships to avoid the Red Sea and take the much longer journey around southern Africa.
That would increase transport times, fuel expenses and insurance costs.
Markets Doubt Blockade Will Be Effective
ING analysts said it remains unclear whether the Houthis have the ability to enforce the blockade successfully.
Even so, the threat alone could raise insurance premiums for ships operating in the region.
However, analysts noted that the relatively limited reaction in oil prices suggested traders were not convinced that the blockade would significantly disrupt shipping.
The market therefore appeared to be pricing in higher risk without assuming a complete closure of the route.
US-Iran Conflict Continues to Escalate
The latest Houthi warning came as fighting between the United States and Iran intensified.
U.S. forces continued to strike Iranian military targets, while Tehran carried out attacks against American allies across the region.
Iranian officials have indicated that diplomatic contacts remain active.
Nevertheless, traders are increasingly concerned that the conflict could spread into additional oil-producing countries or threaten more energy infrastructure.
Supply Risks Continue to Support Crude Prices
Geopolitical uncertainty has provided underlying support for oil prices.
However, the market’s gains have remained limited because previous periods of heightened Middle East tension did not always result in prolonged disruptions to global oil supplies.
Some investors therefore remain cautious about pushing crude prices significantly higher without evidence of a sustained reduction in production or exports.
The outlook could change quickly if shipping routes, oil facilities or export terminals experience direct disruption.
US Oil Inventory Data Comes Into Focus
Investors will now turn their attention to weekly U.S. oil inventory figures.
The American Petroleum Institute is scheduled to release its estimates later on Tuesday.
Official data from the U.S. Energy Information Administration will follow on Wednesday.
The reports will provide fresh information about crude supplies and fuel demand in the United States, the world’s largest oil consumer.
Stronger demand or a larger-than-expected fall in inventories could support prices. In contrast, rising stockpiles may place further pressure on the oil market.
