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US Oil Update: Crude Climbs As UAE-Iran Rift Deepens, Hormuz Traffic Remains Constrained

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Crude futures settled higher in after-hours trading on Wednesday as markets weighed an escalation in tensions between the UAE and Iran, adding to concerns about supply disruptions, while uncertainty over efforts to end the wider conflict kept traders on edge.

Front-month West Texas Intermediate crude futures advanced 1.3% to $86 per barrel, while Brent futures were up 0.7% to $91.67/bbl.

US commercial crude oil inventories increased by 4.4 million barrels to 428.8 mmbbls in the week ended Aug. 14, the Energy Information Administration said in its weekly report on Wednesday.

Crude inventories are matching the five-year average for this time of year, the EIA said. The build exceeds Macquarie's estimate of a 3.9-mmbbl rise in inventories for the week ended Aug. 14.

Gelber & Associates said the immediate focus remains on whether security conditions improve enough for flows to recover, while Wednesday's US inventory release provides the next domestic test for a rally that is still being driven primarily by geopolitics.

On Wednesday, the UAE paused all economic ties with Iran after accusing Tehran of firing ballistic missiles at its territory, ramping up regional tensions.

The Gulf state, one of Iran's main trading partners, said it halted trade and financial transactions until further notice in light of "escalations that undermine regional and international peace and security."

Iranian Foreign Ministry spokesman Esmail Baghaei denied responsibility for the attack, saying that the allegation undermines ongoing efforts to strengthen trust among regional countries and prevent a further escalation of insecurity in the region.

Emmanuel Belostrino, head of global crude and geopolitical market data at Kpler, said that the 60-day window established by the Islamabad Memorandum of Understanding of 17 June lapsed on Aug. 17 with no peace agreement, no extension, and no active talks.

The latest data from Kpler show the truce cleared the conflict's stranded backlog in three weeks and moved about 374 million barrels of crude out of the Gulf, but it never reopened the Strait of Hormuz.

The 60-day window's shortfall relative to normal Hormuz flows is about 550 million barrels of crude, bridged so far by inventory draws and truce-window buffers that thin starting in September, according to Kpler estimates.

The global crude market remains focused on the Hormuz, with confirmed crossings through the strategic waterway plunging 17% from the previous day to 10, with six vessels exiting the Middle East Gulf and four entering, according to Kpler.

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$KMI