The Strait of Hormuz remains the biggest variable

The Strait of Hormuz has become one of the most important factors determining the direction of oil prices.

According to vessel-tracking data cited by Reuters, traffic through the strait fell to just seven vessels on September 10, down from 12 the previous day and well below the 10-day average of 14. One of the vessels was a very large crude carrier carrying nearly 2 million barrels of oil.

Although some vessels may not appear in tracking data because their transponders are switched off, the sharp decline in traffic highlights the disruption facing one of the world's most important energy corridors.

If restrictions continue, traders are likely to maintain a significant geopolitical risk premium in crude prices.

A 3% decline does not necessarily signal a trend reversal

Brent crude fell around 2.8% on September 11 to settle at $104.61 per barrel, while WTI declined about 2.4% to $100.05.

Despite the Friday decline, both benchmarks gained more than 8% for the week. Reuters said the pullback was partly driven by expectations of potential diplomatic talks concerning shipping through the Strait of Hormuz.

The market therefore remains extremely sensitive to new developments.

A positive development in negotiations could quickly push prices lower, while another attack on oil tankers or energy infrastructure could send prices higher again.

Alternative routes are also coming under pressure

The risk is no longer limited to the Strait of Hormuz.

Saudi Arabia temporarily shut its East-West oil pipeline following a drone attack. According to Reuters, the roughly 1,200-kilometer pipeline has the capacity to transport 4 million to 5 million barrels of oil per day, equivalent to around 4% to 5% of global supply.

The pipeline is strategically important because it allows Saudi Arabia to transport crude from its eastern oil-producing region to Red Sea ports, reducing its dependence on the Strait of Hormuz.

The market is therefore facing a potentially serious situation:

The main shipping route through Hormuz is disrupted, while an important alternative route has also been affected.

If both disruptions persist, pressure on global oil supplies could intensify.

Saudi oil supply has fallen sharply

According to IEA data cited by Reuters, Saudi Arabia's crude oil supply fell to around 6 million barrels per day in August, its lowest level in more than three decades.

Supply fell by approximately 2.3 million barrels per day from the previous month. The IEA attributed part of the decline to attacks linked to the Houthi movement and disruptions affecting regional shipping routes.

This makes the oil market particularly sensitive to new supply shocks.

If production remains depressed while shipping conditions fail to normalize, crude prices could face additional upward pressure.

Goldman Sachs warns of a $120 oil scenario

The view that oil prices could rise further is not limited to short-term traders.

Goldman Sachs has warned that oil could rise to around $120 per barrel if attacks on Middle Eastern shipping intensify and cause significant disruptions to oil transportation. Conversely, a normalization of regional oil exports could lead to a sharp decline in prices.

The $120 level should therefore not be interpreted as a guaranteed forecast. Instead, it represents a potential upside-risk scenario if conditions around Hormuz deteriorate further.

Three scenarios for oil prices

Three broad scenarios are possible in the near term.

Scenario 1: Hormuz returns to normal.

If diplomatic efforts succeed and shipping resumes normally, much of the geopolitical risk premium could quickly disappear. Brent prices could then come under significant downward pressure.

Scenario 2: Hormuz remains restricted.

This would be the more bullish scenario for oil. If vessel traffic remains low while Saudi and regional supplies remain disrupted, Brent could stay above $100 and move toward higher levels.

Scenario 3: The conflict expands further.

This would represent the highest-risk scenario. Additional attacks on tankers, pipelines or refineries could force the market to price in a much larger supply shock.

Under such circumstances, the $110–$120 per barrel range could become an increasingly important market target.

What should investors watch?

Key indicators include:

• Vessel traffic through the Strait of Hormuz
• The reopening of Saudi Arabia's East-West pipeline
• New attacks on oil tankers
• Saudi oil export volumes
• Developments around Bab el-Mandeb and the Red Sea
• Diplomatic talks involving Iran and Hormuz
• Diesel and refined-product prices

Among these indicators, Hormuz vessel traffic may be the most important. A sustained recovery in traffic would give the market more confidence that the risk premium can be reduced. Continued low traffic would point in the opposite direction.

Conclusion

The nearly 3% decline in oil prices on Friday is not enough to confirm a lasting downward reversal.

Supply risks remain elevated as shipping through Hormuz remains restricted, Saudi oil supply has fallen sharply and the East-West pipeline has been temporarily shut following an attack.

Oil prices therefore retain significant upside risk in the short term, particularly if disruption around Hormuz persists.

The $110 per barrel level could become an important next target. If tensions escalate further and oil transportation is severely disrupted, a move toward $120 per barrel cannot be ruled out.

Conversely, a rapid normalization of shipping through Hormuz could trigger a sharp decline as the geopolitical risk premium unwinds.

Sources: Reuters, IEA, Goldman Sachs.