Morning Highlights: Geopolitical Risk Keeps Floor Under Oil Prices as Iran-Israel Conflict Lingers

Market Snapshot (as of 6:15 EST)

• Brent (Aug): $74.47 (+$1.24 | +1.7%)

• WTI (July): $72.88 (+$1.11 | +1.5%)

Oil prices edged higher Tuesday amid persistent geopolitical uncertainty in the Middle East, though both benchmarks showed significant intra-day volatility. Traders are increasingly cautious over shipping risks near the Strait of Hormuz, but no direct supply disruptions have been reported.

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Market Drivers

Geopolitical Risk Keeps Premium Intact

• Despite no reported production losses from Iran or its neighbors, the potential for escalation continues to support prices.

• Iran, the third-largest producer in OPEC, remains at the center of market focus after Israeli strikes last week targeted military and nuclear assets.

• Analysts note that while the risk of a Hormuz closure remains low, any perceived threat to the ~19 million bpd flowing through the strait keeps markets on edge.

Ole Hansen, Saxo Bank: "There is no appetite to close the strait. Iran would lose revenue, and the U.S. wants lower oil prices to fight inflation."

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Maritime Incidents Underscore Risk

• Electronic warfare interference near the Strait of Hormuz has begun to affect vessel navigation systems.

• A collision involving three ships near the Strait early Tuesday has raised concerns about commercial shipping safety in contested waters, even if unrelated to direct military conflict.

• This comes after similar radar-jamming and spoofing incidents were observed over the weekend.

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IEA Report: Demand Trimmed, Supply Up

• The International Energy Agency (IEA) released its monthly oil market report Tuesday:

o World oil demand forecast was revised down by 20,000 bpd.

o Supply forecast was raised up by 200,000 bpd — to 1.8 million bpd.

• The result reinforces the notion of a looser market in 2H25, particularly if geopolitical tensions do not disrupt flows.

The IEA continues to cite sluggish industrial growth in Europe and China, along with improving refinery margins, as factors limiting demand upside despite summer seasonality.

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Central Banks in Focus

• The U.S. Federal Reserve’s FOMC meets today, with interest rate direction likely to influence dollar strength and, by extension, oil pricing.

• Traders are also monitoring forward guidance for clues about Q3 inflation expectations and the Fed's rate path, given its close relationship with consumer fuel costs.

PVM’s Tamas Varga: “Macroeconomic cues could be more important than geopolitics if tensions ease. The Fed’s tone today will be pivotal.”

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Short-Term Outlook

Factor Implication

Geopolitics Keeps risk premium baked into futures. Any signal of Strait of Hormuz disruption could move Brent back toward $78.

IEA Data Mildly bearish; higher supply forecast offsets demand weakness, reinforcing rangebound outlook if conflict de-escalates.

Shipping Risk Underestimated by some traders; non-lethal risks (jamming, spoofing, accidents) could add soft insurance cost and freight premiums.

Central Bank Watch Hawkish tone from the Fed would support the dollar and weigh on crude, but dovish talk could offset IEA-induced pressure.

Bottom Line

Crude prices are climbing, but volatility remains the defining feature of the current market. So far, no barrels have been lost, but the threat to supply routes—especially via Hormuz—is keeping traders cautious and risk premiums intact.

The IEA’s slightly bearish forecast provides a moderating effect, particularly if central banks adopt a firm stance on rates. But any headlines involving military escalation or commercial shipping interference could once again shift the momentum sharply higher.