Oil Poised for 21% Monthly Surge on Widening Mideast Conflict and Falling US Inventories

Oil prices are on track to close out July with a gain of more than 20%, their largest monthly increase since March, fueled by a combination of escalating military conflict in the Middle East and tightening crude supplies in the United States.

During Asian trading, Brent crude futures for September delivery rose 0.7% to $89.64 per barrel, while West Texas Intermediate (WTI) crude futures gained 0.6% to $84.06 per barrel, according to market data.

Geopolitical Risks Escalate

Fears of prolonged supply disruptions intensified following renewed military exchanges between the United States and Iran. The conflict's scope appears to be widening after an unidentified drone struck gas vessels at Egypt's Damietta port near the Suez Canal, sparking fires and raising concerns over the security of another critical energy chokepoint.

This incident adds to existing worries over two key transit corridors: the Suez Canal and the nearby SUMED pipeline, both vital for moving crude oil and refined products from the Middle East to Europe. It compounds ongoing threats from Houthi militants to shipping in the Red Sea and Iran's assertions of control over the Strait of Hormuz.

US Stockpiles Drop Sharply

Ad

Supporting prices further, fresh data from the U.S. Energy Information Administration (EIA) revealed a significant tightening of the U.S. market. The report on Wednesday showed that commercial crude inventories fell by 7.2 million barrels in the week ended July 24, a much larger decline than analysts had expected.

The draw pushed U.S. commercial crude stockpiles down to 404.5 million barrels, their lowest level since 2018. This sharp inventory decline reinforces investor concerns that an expanding conflict in the Middle East could severely strain an already tightening global supply balance.

Market Context

While poised for a monthly surge of nearly 21%, both Brent and WTI benchmarks were on track for a weekly loss of almost 7%. This weekly decline was attributed to earlier, but since faded, hopes for peace talks that had temporarily weighed on prices at the start of the week.