Oil Price Surges as Strait of Hormuz Reopening Fades, SPR Hits 43-Year Low

• Brent crude rises as uncertainty over the Strait of Hormuz keeps supply concerns alive
• The Strategic Petroleum Reserve has dropped below 300 million barrels, limiting the US buffer against another oil shock
• Higher energy costs could put fresh pressure on US inflation, while markets reassess the outlook for interest rates.

The oil price is climbing again, with Brent crude moving close to $90 a barrel as hopes for a quick resolution between the US and Iran fade. The latest jump comes at a weird time for markets, with US inflation data due this week and energy costs already showing signs of becoming a bigger problem. There is also less of a cushion available if supply disruptions get worse. Amidst this, America’s emergency oil stockpile is now at a level not seen in decades.

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Oil Price Nears $90 as Strait of Hormuz Risk Grows

Brent crude was trading around $89.92 a barrel on Tuesday, up more than 2% on the day, according to market data. It has climbed sharply over the past two sessions as expectations for a deal that would reopen the Strait of Hormuz have weakened. American President Donald Trump was seen demanding war “compensation” from Iran.

The waterway remains a major pressure point for the oil market. A large number of the world’s oil and liquefied natural gas normally passes through the Strait. Therefore, a prolonged disruption causes a serious supply concern. Reports revealed that Iran’s conditions for reopening the route are making a quick resolution harder to see.

The supply picture in the US is adding another layer to the story. The Strategic Petroleum Reserve dropped by 6.1 million barrels last week to 298.7 million barrels, according to Department of Energy data. It is the first time the reserve has fallen below 300 million barrels since 1983.

The US government has already authorized major releases from the reserve this year. This includes 172 million barrels as part of an effort to ease the impact of the Iran conflict on energy markets. David Goldwyn, a former State Department special envoy for international energy affairs under President Barack Obama, said the situation is less alarming than the headline figure suggests. He added,

“I’m not worried about the stability of the reserve or our ability to do another drawdown, if we needed to.”

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Iran War Puts US Inflation in the Spotlight

The oil move is already causing issues in the bond market. The 30-year Treasury yield climbed to 5.245%, its second-highest level since 2007. This comes as investors looked at the prospect of higher energy costs and a tougher inflation outlook.

This comes as the US inflation data is due this week, and markets are already watching for signs that the jump in crude could feed into consumer prices. Reuters reported that the latest rise in oil has pushed Treasury yields higher and lifted expectations for a possible Federal Reserve rate hike in September.

For investors, the concern is less about one day’s move in Brent and more about how long crude stays elevated. A prolonged disruption around the Strait of Hormuz could keep energy prices high and make it harder for inflation to cool.

This is why the oil price is becoming a bigger problem for markets beyond the energy sector. Higher crude can lift fuel and transportation costs, while rising Treasury yields can tighten financial conditions at the same time.

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