Oil eased on signs the US is easing Iran’s blockade of the Strait of Hormuz

May 5 – Oil prices eased on Tuesday after rising as much as 6% in the previous session on signs that the US Navy is closing the key Strait of Hormuz waterway to Iran, potentially opening up supplies from key producing areas in the Middle East.

The US launched a new operation on Monday aimed at reopening Hormuz to shipping, and Maersk said later its Alliance Fairfax, a US-flagged carrier, left the Gulf through the strait with US military assets, easing some fears of immediate supply disruptions.

Brent oil futures for July were down 68 cents, or 0.6%, at $113.76 a barrel by 0100 GMT after settling 5.8% on Monday. US West Texas Intermediate (WTI) crude was down $1.59, or 1.5%, at $104.83 after rising 4.4% in the previous session.

“The successful escorted exit of a Maersk-operated vessel has helped ease fears of some immediate supply disruptions,” said Tim Waterer, chief market analyst at KCM Trade. “It shows that a limited safe passage is possible under current conditions and helps alleviate the fear of some worst-case supply disruptions. ⁠However, it is still a one-off event rather than a full reopening,” he said in an email.

Still, Iran launched strikes in the Gulf on Monday to counter the US move as it wrestles for control of the Strait of Hormuz, which links the Gulf to vast markets and normally carries about 20% of global demand for oil and gas every day. Several commercial vessels were reportedly hit in the area, while a major oil port in the United Arab Emirates was set ablaze following an Iranian strike.

Trump’s attempt to use the US Navy to free the shipping is the biggest escalation of the war since the ceasefire was declared four weeks ago. The US has been pushing for the opening of Hormuz to ease a major disruption to global energy supplies since Iran largely closed the strait after the war between the US and Israel began on February 28.

On Monday, Chevron Chairman and CEO Mike Wirth said the Hormuz shutdown would begin to cause a physical shortage of oil supplies around the world. Due to the disruptions, global oil stocks are falling to their lowest levels in eight years, with Goldman Sachs warning on Monday that the pace of depletion is becoming alarming as supplies are constrained. “With the world burning fast through crude held in commercial stockpiles, strategic reserves and floating storage, the underlying supply squeeze is a powerful tailwind for oil prices,” IG market analyst Tony Sycamore said in a note.