Oil prices volatile due to Middle East tensions

What happened: Oil prices surged in late July and early August due to escalating tensions between the U.S. and Iran in the Middle East. On July 30, WTI crude oil closed up 6.56% and RBOB gasoline up 2.59% as renewed hostilities threatened global energy supplies. Prices continued to climb, with Brent crude breaching the $95 mark on August 1, and WTI hitting a five-week high on August 2. The conflict, which includes actions by Iran and its proxies in the Red Sea, has raised concerns about the security of energy shipments through the Strait of Hormuz.

Market impact: The oil and gas upstream sector stands to gain significantly from these price increases. Wood Mackenzie estimates a potential $495 billion windfall in free cash flow for the sector by 2026 if crude averages $90 per barrel. Meanwhile, oil traders remained largely bearish, betting on a quick peace deal, despite the deepening disruptions. However, prices retreated on August 4 after Qatar indicated continued diplomatic efforts between the U.S. and Iran.

What to watch next: Investors should monitor the U.S.-Iran conflict's trajectory, with key dates including August 7 (when the U.S. is expected to impose new sanctions on Iran) and any potential diplomatic developments. Additionally, watch for any changes in oil production and export policies from OPEC+ countries, with their next meeting scheduled for September 1.