Crude Prices Supported by Dollar Weakness and Middle East Tensions

Crude Oil Rises as Middle East Tensions and Weak Dollar Support Prices

September WTI crude oil (CLU26) rose by 1.42 dollars, or 1.67%, on Tuesday, reaching a three-week high, while September RBOB gasoline (RBU26) declined by 0.0122 dollars, or 0.37%. The mixed price action came as a sharply weaker dollar — down to a 2.5-month low — provided support for energy commodities, and as ongoing Middle East disruptions kept the Strait of Hormuz closed, limiting crude supplies from the region.

Middle East Developments

Tensions escalated after the United Arab Emirates announced it was cutting all economic ties with Iran, following accusations that Iran fired ballistic missiles at its territory. President Trump said on Monday he was not interested in extending the expiring agreement with Iran, dimming prospects for a swift reopening of the Strait of Hormuz. US Energy Secretary Chris Wright said the US is playing the long game with Iran, implying no plans for de-escalation.

Israeli attacks on Iran-backed Hezbollah in Lebanon and on Hamas in Gaza continued, while Yemen-based Houthis attacked ships in the Red Sea, and several vessels were hit by projectiles in the Strait of Hormuz. These actions dampened hopes for a quick end to hostilities and a reopening of the strait.

Despite the disruptions, gains in crude prices were contained as many Gulf countries have managed to transit shipments through the strait. Last week, Secretary Wright said that 9 million barrels per day crossed through the strait over the past seven days. Vessel-tracking data from Bloomberg, Kpler, and Vortexa showed that the UAE, Qatar, Iraq, and Kuwait have been shipping crude with transponders turned off, suggesting continued efforts to maintain exports.

Treasury Secretary Bessent said the administration will announce unprecedented economic measures against Iran. Meanwhile, an Iranian military spokesperson said no ship can safely pass the Strait of Hormuz without Iran's authorization and supervision. President Trump claimed the US has total control over the Hormuz Strait.

Supply and Inventory Data

The IEA, in its monthly report, said the global oil supply deficit will worsen, with global oil inventories expected to fall in the third quarter at twice the previously estimated rate due to ongoing disruptions from the US-Iran war.

In July, Ukraine attacked Russian refineries, oil tankers, and major pipeline infrastructure at least 30 times. According to EA Analytics, Russian crude-processing rates averaged 3.51 million barrels per day in July, the lowest in 24 years, and Russian crude production fell to 8.89 million barrels per day, the lowest in six years.

OPEC delegates approved a production increase of 188,000 barrels per day for September, restoring all of the 1.65 million barrels per day supply cutback made in 2023. OPEC's July crude production rose by 1.16 million barrels per day to 19.44 million barrels per day.

On the inventory front, the EIA reported that crude inventories rose by 4.41 million barrels, while distillate stockpiles fell by 1.53 million barrels, and gasoline supplies increased by 688,000 barrels. Crude supplies at Cushing declined by 1.3 million barrels. As of August 14, US crude inventories were 0.3% above the seasonal five-year average, gasoline inventories were 5.3% below, and distillate inventories were 12.7% below.

US crude oil production in the week ending August 14 rose by 0.2% week-over-week to 13.83 million barrels per day. Baker Hughes reported that active US oil rigs increased by one to 455 rigs, a 1.25-year high.

IEA Chief Warns of Long-Term Damage

International Energy Agency Executive Director Fatih Birol described the situation surrounding the Strait of Hormuz as a major energy crisis, likening it to a broken vase. He said that even if the vase were glued back together, it could not be fully restored, just as reopening the strait would not return international energy markets to their previous state.

"The volume of oil and gas losses resulting from the disruption of shipments through the Strait of Hormuz following the war [of the US and Israel against Iran], which began in late February, exceeds the combined losses incurred during the oil crises of 1973 and 1979," Birol was quoted as saying by Turkey's Ekonomi Manset portal. "The crisis in the Strait of Hormuz has inflicted long-term damage on global energy markets, the vase is shattered, and it cannot be fully restored even if glued back together, and nothing will ever be the same again."

Birol noted that transit through the Strait of Hormuz, which stood at around 25 million barrels per day prior to February 2026, has now fallen to roughly 15 million, and at times to 12-17 million. He also identified three geopolitical factors that will shape energy markets in the foreseeable future: the conflict in Ukraine, tensions in the Middle East and around Iran, and US-China competition in artificial intelligence and technology.