Brent heads for a 5.3 per cent weekly loss as producers find alternative routes and markets adjust to weaker tanker traffic through the strategic waterway

Crude oil prices are heading for a sharp weekly decline despite persistent disruption to tanker traffic through the Strait of Hormuz, as traders increasingly weigh alternative export routes and the possibility of easing supply pressures against escalating tensions between the United States and Iran.

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Brent crude was trading at about $89.17 a barrel on Friday, putting the global benchmark on course for a 5.3 per cent weekly decline, while West Texas Intermediate stood at $83.19 and was heading for a 4.3 per cent fall over the week.

The weakness in prices has come despite fresh evidence that shipping through Hormuz remains well below normal levels.

Preliminary data from vessel-tracking firm Kpler showed that only seven commodity vessels passed through the strategic waterway on Thursday, compared with 17 the previous day and a 10-day average of 15.

Reuters reported that the vessels included tankers, a very large gas carrier and chemical tankers. (Reuters)

The latest figures underline the unusual dynamics confronting the oil market. Hormuz remains one of the world’s most important energy chokepoints, yet the reduction in traffic has not translated into a sustained fresh surge in crude prices.

That is partly because producers and traders have found ways to keep more oil moving.

Goldman Sachs estimated that oil flows through Hormuz had recovered to around two-thirds of their pre-war level, while commodity analysts at ING said producers in the Persian Gulf were increasingly looking for ways to move crude outside the waterway.

“More Persian Gulf oil producers seem to be shuttling their crude through the strait, while producers in the region are increasingly selling their crude outside the Strait of Hormuz,” ING analysts Warren Patterson and Ewa Manthey said.

Estimates cited by Bloomberg put current flows through the strait at between six million and eight million barrels a day, suggesting that substantial volumes of crude are still reaching international markets despite the disruption.

The ability of producers to reroute supplies has helped prevent the kind of severe shortage that might otherwise have pushed prices sharply higher.

Saudi Arabia and other Gulf producers have also increased efforts to move crude through alternative infrastructure and shipping arrangements, providing the market with an additional buffer.

The Wall Street Journal reported that increased shipments and expectations of higher flows helped oil futures finish the week lower despite continuing uncertainty around Hormuz. (The Wall Street Journal)

The decline in oil prices also reflects changing expectations about the wider US-Iran confrontation.

The Trump administration has intensified economic pressure on Tehran after ruling out a return to the terms of a ceasefire reached in June.

On August 24, US Treasury Secretary Scott Bessent announced Operation Economic Outcast, a broad campaign designed to isolate Iran financially and disrupt what Washington describes as the country’s remaining economic lifelines.

The US Treasury described the initiative as an “unprecedented” whole-of-government campaign targeting Iran and entities that enable its economic activity.

The measures include pressure on financial networks and sectors connected to shipping, oil and other sources of revenue. (U.S. Department of the Treasury)

Bessent said the objective was to sever “every economic lifeline” sustaining the Iranian regime.

The pressure campaign has raised the possibility that Tehran could eventually return to negotiations, a prospect that initially helped push crude prices lower after the sanctions announcement.

But hopes of renewed talks have since weakened.

White House spokeswoman Anna Kelly said on Thursday that Washington was not engaged in talks with Tehran, while the US blockade remained in force.

“The naval blockade remains in full force and effect, and Operation Economic Outcast is underway to sever every remaining economic lifeline sustaining the regime,” Kelly said, according to the Wall Street Journal.

The conflicting signals have left oil traders balancing two opposing risks.

On one side is the possibility of a prolonged confrontation that keeps Hormuz traffic depressed and threatens a substantial portion of global energy supplies.

On the other is the prospect that increased economic pressure, alternative shipping arrangements and diplomatic efforts could eventually restore more normal flows.

The Strait of Hormuz remains central to that calculation.

The waterway connects the Persian Gulf with the Gulf of Oman and is a major route for oil and liquefied natural gas exports from Gulf producers.

Any prolonged disruption therefore has the potential to affect crude supplies, shipping costs and energy prices well beyond the Middle East.

Yet the latest shipping data show how quickly the market can adapt.

Some vessels have continued operating despite the risks, while others have reportedly switched off tracking systems.

Reuters noted that vessel counts can change as ships turn off their transponders, meaning publicly available shipping data may not capture every movement through the strait. (Reuters)

The market is also watching developments outside the immediate US-Iran confrontation.

Oman has been involved in efforts to establish arrangements that could facilitate safer navigation through Hormuz.

Omani Foreign Minister Badr Al Busaidi said earlier this week that he was hopeful a temporary shipping corridor and practical arrangements for restoring safe navigation could be announced. (Iran International | Iran International)

Any credible improvement in navigation would probably ease some of the geopolitical premium currently embedded in crude prices.

At the same time, traders are monitoring Venezuela after increased US involvement in the country’s oil sector raised expectations that production could eventually rise.

A sustained increase in Venezuelan output could add further supply to global markets, although analysts have cautioned that rapidly restoring production would be difficult after years of underinvestment and deterioration across the country’s oil industry.

For now, the oil market appears more concerned with the availability of barrels than the drama surrounding the geopolitical confrontation.

That has produced a striking outcome: tanker traffic through one of the world’s most important energy chokepoints remains unusually weak, yet crude prices are still falling.

The retreat suggests traders believe producers can continue adapting to the disruption, at least for now.

But the balance remains fragile.

A serious escalation that sharply reduces remaining flows through Hormuz could quickly reverse the recent price decline, particularly if alternative export routes reach their limits.

For oil-consuming countries and major producers such as Nigeria, the direction of that balance will remain important.

A sustained decline in crude prices could ease fuel and inflationary pressures in importing economies, while a renewed supply shock could produce the opposite effect.

Also read: NNPC moves to boost crude amid rising oil prices

For the moment, however, the market is looking beyond the immediate shipping disruption and betting that enough oil can continue reaching consumers to keep prices below their recent highs.