Oil Price Today (July 30): Crude oil dips below $90 after 8% surge on Wednesday. Here’s why

Oil prices eased on Thursday after giving up part of the previous session's sharp gains, as oil tankers continued to move out of the Middle East despite escalating tensions and the widening U.S.-Iran war.

Crude oil price on July 30

Brent crude futures were down $1.29, or 1.42%, at $89.45 a barrel. U.S. West Texas Intermediate (WTI) crude slipped 56 cents, or 0.66%, to $83.90 a barrel.

In the previous session, Brent had surged 7.91% while WTI climbed 6.56%, marking one of the biggest jumps during the Iran war. The rally had reversed Tuesday's 5% decline, which followed a brief pause in hostilities in the five-month conflict.

Preliminary shipping data showed that 39 commodity vessels passed through the Bab el-Mandeb Strait into the Red Sea on Tuesday, the highest count since July 19. At the same time, only a handful of ships continued to transit the Strait of Hormuz.

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The Strait of Hormuz is the world's most important oil shipping route and had previously handled around one-fifth of global oil and gas flows. The passage has remained largely blocked since the U.S.-Iran war began in February, despite repeated efforts to secure a diplomatic agreement that would allow ships to move through the strait.

Meanwhile, U.S. and Saudi strikes targeted Iran-backed paramilitary forces in Iraq on Wednesday. It was the first time Saudi Arabia had publicly joined U.S. air strikes, with the action carried out in response to drone attacks launched from Iraq on Saudi oil facilities.

The strikes marked a return to U.S. military action in the region after US President Donald Trump called off a bombing campaign over the weekend because of dwindling munitions. Iran also said it had attacked U.S. bases in Jordan and struck three tankers transiting the Strait of Hormuz through what it described as an unauthorized route.

Where are prices headed?

The direction of oil prices will depend heavily on how long the disruption lasts. JPMorgan estimates that every additional month of supply disruption could add around $7 to $8 a barrel to Brent prices. A three-month disruption could push monthly average Brent prices to about $114 a barrel.

Goldman Sachs has similarly warned that Brent could climb to $120 a barrel if shipping disruptions through the Strait of Hormuz, the world's most important oil transit route, continue. Its base case is still that tensions in the Middle East will eventually ease.

Under that scenario, Goldman Sachs expects Brent to average $80 a barrel in the fourth quarter and $75 next year. However, the bank said the risks to those forecasts remain "tilted to the upside", pointing to the possibility that shipping disruptions could persist through both the Strait of Hormuz and the Red Sea.

Anindya Banerjee, Head of Commodity Research at Kotak Securities, said geopolitical developments were once again driving crude oil prices. "Any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond," he said.

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According to Banerjee, the market has shifted its focus from the military action itself to the declining chances of a diplomatic breakthrough. Tehran has set new conditions for restarting negotiations, he said, while successive developments have delayed the return of normal tanker traffic through the Strait of Hormuz. Shipping activity through the waterway remains well below pre-war levels.
Tanker traffic through the Strait of Hormuz is still far below normal, keeping the underlying supply risk in place despite the easing of immediate price pressure.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)