Week in Review – Shipping Bottlenecks in Hormuz Keep Pressure on Oil Prices

Oil markets are trying to balance two competing forces right now: the possibility of renewed diplomacy and the reality of ongoing disruptions. This morning, prompt WTI is easing slightly on headlines that U.S.-Iran talks could resume, but the broader trend remains firmly higher. Prices are still on track for a weekly gain of more than $12/bbl as the conflict continues to choke through the Strait of Hormuz.

What's happening in the water explains why the market isn't giving back those gains. Shipping through the Strait has effectively stalled, with just 5 vessels transiting in the past 24 hours, compared with around 140 under normal conditions. The situation remains unstable: Iran's Islamic Revolutionary Guard Corps has increased mine-laying activity, seized multiple vessels earlier this week, and continues to operate aggressively in the region, while the U.S. Navy has expanded its blockade and is actively intercepting ships. At least 34 vessels have already been turned around, and new threats, including naval mines, are forcing shipping companies to avoid the area altogether. The result is a severe bottleneck, with hundreds of ships and roughly 20,000 seafarers effectively stranded.

This disruption is translating directly into lost supply. An estimated 14.5 million barrels per day of Gulf production, about 57% of pre-war output, is currently offline. Much of that loss is tied to precautionary shut-ins and export constraints rather than permanent damage, but that doesn't make it easy to bring back. Even if the Strait reopens, the recovery will depend on tanker availability, infrastructure readiness, and reservoir performance. Available tanker capacity in the region has already dropped by about 50%, limiting how quickly crude can move once flows resume. Some estimates suggest roughly 70% of lost output could return within three months, but the final portion may take significantly longer - especially if disruptions persist or wells require additional work before restarting.

There are also early signs of how global trade flows are adjusting. Iran continues to load crude onto supertankers, but there is little evidence that large volumes are successfully bypassing the blockade. At the same time, China's crude stockpiles, estimated at nearly 1 billion barrels, have barely declined since the conflict began, suggesting buyers are leaning on inventories rather than chasing spot cargoes. In Russia, Urals crude prices have eased slightly below $100/bbl but remain well above pre-war levels, reflecting tight global balances and elevated freight costs.

On the policy side, governments are starting to respond. The U.S. has extended a 90-day waiver on the Jones Act to allow foreign vessels to move fuel between domestic ports, aiming to ease logistical constraints and contain rising fuel costs. At the same time, the administration has signaled a broader push to expand the blockade's reach globally, reinforcing restrictions on Iranian exports and tightening control over shipping lanes.

Industry sentiment reflects just how uncertain the outlook has become. Feedback from the Federal Reserve Bank of Dallas energy survey highlights the challenge: producers point to the need for higher future prices and more stability before committing to new drilling, while also noting that the number of moving variables makes near-term forecasting extremely difficult.

Bottom line: the market is being driven less by demand signals and more by physical constraints. Even if negotiations move forward, the combination of restricted shipping, offline production, and limited logistics capacity keeps supply tight. Until there is a clear and sustained reopening of the Strait, and confidence that it can remain open, energy markets are likely to stay supported and highly reactive to every new headline.

Prices in Review

Crude prices trended higher throughout the week after a brief early decline. Prices opened at $89.00 on Monday and dipped slightly to $87.89 on Tuesday, the lowest level of the week. The market then strengthened to $90.00 on Wednesday and continued higher to $92.90 on Thursday. On Friday, crude opened at $96.62, the week's highest level. Throughout the week, crude prices increased by $7.62 per barrel, representing an overall 8.6% gain.

Diesel prices rose over the course of the week after an early dip. Prices opened at $3.5947 on Monday and fell to $3.5151 on Tuesday, the week's lowest level. Prices then rebounded to $3.7870 on Wednesday and continued to rise to $3.9187 on Thursday. This morning, diesel reached $4.0122, up $0.4175 per gallon, or a 11.6% gain during the week.

Gasoline prices opened at $3.1414 on Monday and slipped to $3.0780 on Tuesday, the lowest level of the week. Gasoline prices then strengthened to $3.2198 on Wednesday and continued higher to $3.3364 on Thursday. On Friday, prices opened at $3.4700, the week's highest level. Gasoline prices increased by $0.3286 per gallon, representing an overall 10.5% gain during the week.