Oil Prices Edge Higher Amid Volatility Over Gulf Tensions

Crude oil prices closed higher on Friday, May 8, but remained volatile as traders weighed renewed military clashes in the Persian Gulf against diplomatic efforts to secure a ceasefire. The global benchmark, Brent crude, rose 1.2% to settle around $101 a barrel, according to a report from Rigzone citing Bloomberg.

As of Saturday, May 9, prices have held those gains. West Texas Intermediate (WTI) crude is trading at $95.42 per barrel, up $0.61 or 0.64% from the prior close. Brent crude stands at $101.29, a gain of $1.23. The price for Bakken crude at the wellhead is typically traded at a differential to WTI; the current differential is -$3.42 per barrel. Natural gas prices showed little movement, trading at $2.76, down one cent.

The market's focus remains fixed on the Strait of Hormuz, a vital shipping chokepoint that has been effectively closed since the US-Iran war began in late February. Rigzone reported this has triggered an unprecedented supply shock, choking off crude flows and shutting in wells across the region. Prices fluctuated in a roughly $10 range this week as expectations for a resolution shifted rapidly.

"Oil is trading between two risks: diplomacy on one side and another escalation on the other," said Charu Chanana, chief investment strategist at Saxo Markets in Singapore, in the Rigzone report. Recent clashes included US airstrikes on Iranian oil tankers and missile launch sites, while Iran criticized the US for violating a ceasefire agreement. Societe Generale analysts noted that "control of the Strait of Hormuz has emerged as Iran's strongest bargaining chip."

For Bakken operators, the sustained high price environment, with WTI above $95, continues to support strong cash flows and drilling economics. The relatively narrow Bakken differential of -$3.42 indicates robust demand and efficient takeaway capacity for North Dakota's crude, allowing producers to capture a significant portion of the benchmark price. The volatility driven by geopolitical risk, however, injects uncertainty into planning and hedging decisions.

The ongoing conflict has overshadowed other global issues, with a brief price dip occurring on Friday after an announcement of a ceasefire between Russia and Ukraine. The war's primary impact has been rising inflation concerns, with US consumer sentiment hitting a record low for a second straight month due to spiking retail fuel prices.

While the ceasefire between the US and Iran remains technically in effect, the recent hostilities underscore the fragile state of negotiations. As long as the Strait of Hormuz remains a flashpoint, a significant risk premium is likely to stay baked into oil prices, providing a floor for Bakken production revenues.