Iraq's SOMO discounts Basrah as Hormuz risk keeps Brent near $90

Iraq's SOMO offered steep discounts on August-loading Basrah crude to lure buyers to lift cargoes from inside the Strait of Hormuz, a Reuters-reviewed document showed, as Brent holds near $90 a barrel.

"The key support remains the geopolitical risk premium associated with the Iran conflict, which is likely to persist through the second half of the year and keep volatility elevated," said Tobias Keller, an analyst at UniCredit.

The Strait of Hormuz previously carried about a fifth of global crude oil and natural gas supplies, but the U.S.-Iran conflict that began in late February has sharply reduced traffic through the waterway, disrupting Middle East output running into millions of barrels a day. Brent settled at $90.12 a barrel on Friday, up $1.09, or 1.2 percent, while West Texas Intermediate crude rose $1.08, or 1.3 percent, to $84.67. For July, Brent advanced 24 percent and WTI gained 21 percent, the strongest monthly gains since March.

The discounts show sellers must compensate buyers for the security risk of loading inside a contested waterway, a cost likely to persist until a durable ceasefire. Normalization of Gulf oil flows will take four to six months after the United States and Iran reach a durable ceasefire, said Phil Flynn, senior analyst at Price Futures Group, with full normalization expected by early 2027.

The pricing move comes as the Houthi militia in Yemen has separately disrupted shipping through the Bab el-Mandeb Strait linking the Red Sea to the Gulf of Aden, creating a second chokepoint for oil flows. Back-and-forth attacks in recent days have ended a brief pause in the fighting between the two countries, keeping the risk premium elevated.

Poll Raises 2026 Forecasts as Supply Deficit Widens

The July survey of 31 economists and analysts forecast Brent crude would average $85.22 a barrel in 2026, up from June's forecast of $84.50, while U.S. crude is projected to average $80.14, compared with $79.49. The benchmarks have averaged $87.03 and $82.41 respectively year-to-date. Oil demand in 2026 is expected to decline by roughly 500,000 barrels a day to 1.6 million bpd, based on estimates from 10 analysts, while supply deficit estimates for the year range from 1 million bpd to 2.6 million bpd.

The International Energy Agency sees global oil demand falling by 1 million bpd this year before rebounding to rise 2 million bpd in 2027. OPEC lowered its forecast for world oil demand growth in 2026 to 780,000 barrels per day, a third straight downward revision. "As the global economy has been hit hard by the energy crisis, a fast recovery of fundamental demand apart from restocking of inventories still looks unlikely," said Thomas Wybierek, an analyst at NORD/LB.

OPEC+ Pauses Output Hikes as Shipping Costs Bite

OPEC+, with 21 members comprising the Organization of the Petroleum Exporting Countries, Russia and other allies, is likely to pause oil output increases for three months from October after a September output hike, sources have said. The last time the Strait of Hormuz faced a comparable threat was in 2019, when attacks on Saudi Aramco's Abqaiq processing plant briefly knocked out 5.7 million barrels a day of output, sending Brent above $70 before prices retraced within weeks.

Chevron Chief Executive Officer Mike Wirth has warned of "very real" risks to oil supply as the Strait of Hormuz, Red Sea and Black Sea face growing threats. For importers across Asia, higher freight and insurance costs tied to Hormuz disruptions feed directly into landed crude prices, squeezing refining margins and adding to the imported inflation pressures central banks are already fighting.

This article is for informational purposes only and does not constitute investment advice.