Oil prices firmed on Thursday after reports that a cargo vessel was struck by an unknown projectile close to the coast of Oman as it attempted to transit the Strait of Hormuz, reviving concerns about how quickly Middle Eastern oil flows can return to levels seen before the recent conflict.
Brent crude picked up $1.12, or 1.5%, to reach $74.86 a barrel at 1:40 p.m. EDT (1740 GMT), while U.S. West Texas Intermediate rose $1.22, or 1.7%, to $71.56. Earlier in the trading session both benchmarks had slid to their weakest levels since Feb. 27 - the day before the war began - after crude shipments through the strait climbed to their highest volumes since the conflict started.
Before the war, roughly 20% of global oil supplies moved through the Strait of Hormuz between Iran and Oman. That strategic dependency is central to market sensitivity: any disruption or even perceived threat to transits can quickly alter the balance between available supply and buyers' demand.
Incident and immediate market reaction
The suspected strike on the cargo ship was reported by the UK Maritime Trade Operations as the vessel tried to pass through the strait close to Oman's coast. The development came amid official statements that flows were approaching pre-war levels, but also warnings that a full normalisation would take time.
On Wednesday, U.S. Energy Secretary Chris Wright said maritime traffic through the Strait of Hormuz was close to levels seen before the war. However, he cautioned that complete normalisation would likely take a few weeks because naval mines remaining in the strait must be removed before safe, unrestricted transit can resume.
Storage, production and recovery dynamics
Analysts at Rystad Energy highlighted the role of regional storage in determining how quickly producers can restore output. They noted that storage tanks around the Gulf are roughly 50% to 60% full. If tanker traffic through the strait does not pick up soon, producers may be forced to throttle back production, which would push any full recovery into next year. That assessment underscores how physical capacity - not only wellhead output - shapes the pace of market rebalancing and, by extension, pricing power.
At the same time, an agreement between the U.S. and Iran to end the war has allowed traffic through the strait to resume after Iran had effectively blockaded it. The agreement also created a 60-day window for negotiations to address more difficult issues, including Iran's nuclear programme.
Diplomacy, sanctions and expected production
U.S. Secretary of State Marco Rubio told Gulf allies that any deal with Iran would take their interests into account, concluding a Middle East trip aimed at reassuring regional partners who have strong reservations about the initial accord. Banking and market commentary suggests lingering constraints on how quickly Iranian supply could re-enter the market.
Goldman Sachs said it does not expect a substantial increase in Iranian production even if sanctions relief were to continue beyond the August 21 expiry date referenced in discussions. The bank added that China is likely to remain the principal buyer of Iranian crude, given that European Union and British sanctions on Iranian oil and vessels remain in place.
UBS adjusted its price outlook for Brent, lowering forecasts to $85 per barrel for end-September and end-December, and to $80 per barrel for end-March and end-June 2027.
Technical factors and market positioning
Market participants said some of the upside reflected short covering and bargain buying after rapid price declines left markets technically oversold. Energy consulting firm Gelber & Associates noted that the day's strength appeared tied to short covering and bargain hunting following the swift collapse from recent highs. Despite modest gains on Thursday, both benchmarks have remained deep in technically oversold territory for more than a week.
Other global developments with energy implications
In Venezuela, two powerful earthquakes struck in and around the capital, Caracas, with thousands feared dead and widespread damage reported. Analysts said the devastation could slow the anticipated increase in Venezuelan oil exports that the U.S. administration had expected after a change in political control earlier in the year.
Separately, Iraq has been reported to be considering leaving the Organization of the Petroleum Exporting Countries if the group does not allow Baghdad to raise oil production significantly. Observers cautioned that an Iraqi departure would represent a substantial setback for OPEC, which recently saw the United Arab Emirates exit the group less than two months ago.
What this means for markets
The convergence of a reported maritime attack, lingering mine-clearance work in the Strait of Hormuz, constrained storage headroom in the Gulf, and an uncertain path for Iranian production keeps the oil complex sensitive to relatively small shifts in shipping and policy. Those dynamics continue to feed short-term volatility, with tactical trading flows - such as short covering - layered on top of the fundamental picture.
For market participants focused on energy pricing power, the key variables to watch remain tanker traffic through the strait, the pace of mine clearance, regional storage utilisation, and the outcome of the 60-day negotiations tied to the U.S.-Iran deal.