Oil prices slip as US naval escorts ease Strait of Hormuz disruption

Global oil prices fell on May 5 after sharp gains in the previous session, as signs that the U.S. Navy may be easing disruptions in the Strait of Hormuz helped calm immediate supply concerns.

Brent crude futures for July delivery dropped $1.22, or 1.1%, to $113.22 per barrel, after surging 5.8% a day earlier. U.S. West Texas Intermediate (WTI) crude fell $2.02, or 1.9%, to $104.40, following a 4.4% gain in the previous session, Caliber.Az reports per foreign media.

The price retreat came after the United States launched a new operation on May 4 aimed at reopening the vital shipping route. Danish shipping giant Maersk later confirmed that the Alliance Fairfax, a U.S.-flagged vehicle carrier it operates, had exited the Gulf through the strait under U.S. military escort, easing fears of prolonged supply disruptions.

"The successful escorted exit of the Maersk-operated vessel has helped ease some immediate supply disruption fears," said Tim Waterer, chief market analyst at KCM Trade. "It shows that limited safe passage is possible under current conditions and helps chip away at some of the worst-case supply disruption fears. However, it's still very much a one-off event rather than a full reopening."

Despite this development, tensions remain high. Iran launched counterattacks in the Gulf on May 4, targeting vessels and infrastructure as it contests control of the strait, a chokepoint that typically carries around 20% of the world’s oil and gas supply.

Several commercial ships were reportedly hit, while a major oil port in the United Arab Emirates was set ablaze following an Iranian strike. The U.S. effort to secure shipping lanes marks the most significant escalation since a ceasefire was declared four weeks ago.

Washington has been seeking to reopen Hormuz after Iran largely restricted passage following the outbreak of hostilities with the U.S. and Israel on February 28.

Some analysts said the modest decline in prices reflected profit-taking after recent gains rather than a shift in underlying market dynamics.

"The recent dip does look like a bit of profit-taking after a strong run-up, rather than a structural shift in the backdrop," said Priyanka Sachdeva, a senior market analyst at Phillip Nova. "The geopolitical risk premium tied to the Strait of Hormuz remains firmly in place, so the downside is likely to stay limited."

"In the very near term, prices could see some consolidation or mild pullback as markets reassess positioning and react to mixed diplomatic signals."

Meanwhile, Chevron CEO Mike Wirth warned on May 4 that physical shortages in global oil supply could soon begin to emerge as a result of the disruption.

With supply constraints intensifying, Goldman Sachs said global oil inventories are approaching their lowest levels in eight years, raising concerns about the pace of depletion.

"With the world rapidly burning through commercial stockpiles, strategic reserves, and crude held in floating storage, the underlying supply squeeze remains a potent tailwind for oil prices," IG market analyst Tony Sycamore said in a note.

By Sabina Mammadli