Brent dips to $89.45 as Hormuz blockage fuels $120 price warnings
Crude prices retreated from a massive wartime spike, but major banks warn Brent could still hit $120 a barrel because the Strait of Hormuz remains effectively closed.
Brent crude fell $1.29 to $89.45 a barrel on Wednesday, while U.S. West Texas Intermediate dropped 56 cents to $83.90. The pullback followed an explosive session where Brent surged 7.91% and WTI climbed 6.56%, completely erasing a 5% loss triggered by a brief halt in the five-month U.S.-Iran conflict. The dramatic price swing reflects a market struggling to price a sudden escalation in military action.
While the Red Sea saw a modest improvement in traffic, the more critical supply chokepoint remains paralyzed. Preliminary shipping data shows 39 commodity vessels navigated the Bab el-Mandeb Strait on Tuesday, the highest count since July 19. In stark contrast, only a handful of ships are transiting the Strait of Hormuz, the corridor responsible for roughly one-fifth of global oil and gas flows.
The strait has stayed largely blocked since the war began in February, resisting repeated diplomatic efforts to reopen it. U.S. military strikes resumed this week after President Donald Trump abruptly called off a weekend bombing campaign due to dwindling munitions. Iran retaliated by attacking U.S. bases in Jordan and striking three tankers it claimed were using an unauthorized route through the blocked waterway.
Major banks are now modeling the financial impact of a prolonged closure. JPMorgan estimates that every additional month of supply disruption adds $7 to $8 to Brent prices, meaning a three-month outage would push monthly averages to roughly $114 a barrel. Goldman Sachs issued a similar warning, projecting Brent could climb to $120 a barrel if the Strait of Hormuz disruptions continue.
Goldman's base case assumes a diplomatic resolution will eventually materialize, targeting an average Brent price of $80 in the fourth quarter and $75 next year. However, the bank cautioned that its risks remain "tilted to the upside". Anindya Banerjee, Head of Commodity Research at Kotak Securities, observed that trader focus has shifted from the combat itself to the collapsing odds of a diplomatic breakthrough. "Any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond," he said, noting Tehran has introduced new conditions that further delay the return of normal tanker traffic.
