WTI Crude Oil advances on US-Iran supply disruption fears as traders await API report

West Texas Intermediate (WTI) trades around $84.40 at the time of writing on Tuesday, up 2.6% on the day, as concerns over global Oil supplies continue to support prices despite hopes for a diplomatic de-escalation in the Middle East.

The market remains driven by geopolitical developments after US airstrikes on Iran entered their tenth consecutive day. United States (US) President Donald Trump reiterated on Monday that Iran would "pay" for the deaths of three US service members, while the Iranian Islamic Revolutionary Guards Corps (IRGC) claimed to have struck several US military installations in Bahrain and Kuwait.

Tensions escalated further after the Iran-backed Ansar Allah rebels in Yemen announced a maritime embargo against Saudi Arabia in the Red Sea. The move has reinforced concerns over regional energy flows, adding to the persistent risks surrounding shipping through the Strait of Hormuz, a strategic chokepoint for global Oil exports.

Meanwhile, markets continue to assess the prospects for a potential diplomatic resolution between Washington and Tehran. Although easing tensions could limit further gains in Oil prices, immediate concerns over global supply disruptions remain the dominant driver of the market.

Investors will now turn their attention to the weekly American Petroleum Institute (API) Crude Oil inventory report due later on Tuesday.

Middle East tensions keep Oil’s geopolitical premium in focus

BNY Mellon analysts highlight that “a tenth day of strikes keeps the shipping-risk channel alive and leaves Oil trading with a geopolitical premium,” with Gold edging higher alongside crude. They stress that “higher Oil is not just a risk-off signal; it’s also an inflation shock,” which helps explain why “Treasurys haven’t behaved like a simple safe haven” despite the escalation.

According to BNY Mellon, “the US Central Command said it hit command centers, launch sites and air defenses in Iran, while Iran struck US military sites in Kuwait and Jordan,” and that “the UK navy reports also pointed to attacks on vessels near the Strait of Hormuz.” Against this backdrop, BNY Mellon reports that “the standoff has lifted Brent crude to $88.45 a barrel and pushed US gasoline above $4 per gallon,” warning that “disruptions to Hormuz shipping could further tighten global Oil supplies and raise geopolitical risk.”

Deutsche Bank observes that “the headlines weren’t all positive yesterday,” noting that Oil prices “pared back some of their decline after [Ansar Allah] said they’d impose a maritime blockade on Saudi Arabia, which risks adding to the oil supply disruption.” On the Middle East conflict, they see “some hope” after “a spokesman for Iran’s foreign ministry said that ‘ideas from some mediators have been conveyed’ to Iran,” but add that “escalating rhetoric from [Ansar Allah] in Yemen as well as from President Trump meant Brent Crude still closed 1.27% higher at $89.22/bbl.”

Strategists at OCBC point out that “shipping through the Strait of Hormuz has already slowed significantly,” and that Oil prices “rose further after reports that Yemen's Iran-backed [Ansar Allah] plans to restrict Saudi-linked maritime traffic in the Red Sea.” They caution that “such a move would threaten one of the few alternative routes capable of offsetting disruptions in Hormuz, potentially tightening Middle East oil supplies.” OCBC adds that “a larger escalation could revive fears of a prolonged supply shock and drive Oil prices back above $100/bbl,” reminding clients that “for perspective, Brent crude reached $126/bbl in late April, around 40% above current levels.”

MUFG analysts note that “the key themes across markets were an escalation of tensions between US and Iran and this time potentially involving the [Ansar Allah] in Yemen, coupled with concerns around the sustainability of the AI boom.” They highlight that “in particular, the [Ansar Allah] said they will impose a maritime blockade on Saudi Arabia in response to what they say is Saudi Arabia’s siege of the Yemeni capital,” which “led to the Saudi Arabia led military coalition in Yemen to begin implementing operational measures to protect ships in the Bab el-Mandeb Strait at the southern end of the Red Sea.”

MUFG also flags that “a wholesale disruption of the Strait may also be an alternative option, and this may lead some tanker and cargo traffic to take a longer route through the Suez Canal and the Cape of Good Hope which could ultimately lead to higher container freight rates and transport costs.” However, they temper the risk assessment by arguing that “in practice, we think even if there were disruptions it is unlikely to be sustained given the lack of capability right now by [Ansar Allah] to do so and also differentiate which are Saudi linked ships or not.”