Oil tops US$84 a barrel amid the Hormuz logjam

Oil surged again this Tuesday, August 11: US WTI crude rose nearly 3% and topped US$84 a barrel, while international Brent hovered near US$90, as hopes for a US-Iran deal to reopen the Strait of Hormuz faded. At Monday’s close, WTI had already risen 5%, to US$82.13, according to EFE data published by elDinero.

The market punishes the stalemate

WTI traded around US$84.36 at 4:30 a.m. (US Eastern time), its highest level of the month, and Brent added 2.5%, near US$89.90. On Monday the week had closed with a drop of more than 7% on expectations of a pact; now that negotiations have stalled, the market corrects sharply.

ING strategists summarize the mood: “The oil market remains highly sensitive to headlines, causing swings. The current rhetoric suggests any deal is far off, so risks remain skewed to the upside for prices”.

Why it rises so much

The Strait of Hormuz carried about a fifth of the world’s oil before the war between the US and Iran. Now both countries demand mutual reparations, Tehran conditions the reopening on lifting sanctions and blockades, and Washington claims “total control” of the route. Add to that US crude inventories at more than four-decade lows.

The fear of a prolonged logjam is real: economist Modupe Adegbembo of Jefferies warns that if the stalemate continues into next week, market moves “will no longer be so benign”. Capital Economics estimates that if the strait stays closed and inventories run out, the market could reach a “tipping point” toward the fourth quarter, with possible prices of US$120-140 a barrel.

What it means for the Dominican Republic

The DR imports almost all the fuel it consumes, so every jump in international crude pressures the country’s energy bill and, sooner or later, the price at the pump —as far as the state subsidy can contain it. Premium gasoline closed last week at RD$341.10 per gallon, according to the MICM resolution.

The key figure: US$84. The level WTI exceeded this Tuesday, in a market that increasingly resembles the US$100-plus peaks of last month.