WS #14145

The US-Iran/Hormuz conflict remains the dominant market narrative, with the Strait of Hormuz traffic nearly halted after Iran struck a third ADNOC oil tanker, and the US maintaining a naval blockade. Brent crude has surged above $100 per barrel intraday, the highest since May, with oil prices expected to stay elevated. This continues to benefit energy stocks (XOM, CVX, XLE) while pressuring airlines (DAL, UAL, AAL) and shipping. The US has also released 172 million barrels from the Strategic Petroleum Reserve, depleting it below 300 million barrels for the first time since the 1980s, raising concerns about cavern damage and future emergency response capability. This SPR drawdown acts as a counter-signal to the oil supply crisis, dampening the bearish impact on the broader market but also signaling limited future capacity. Additionally, US inflation cooled to 3.4% in July, suggesting the oil price spike has limited pass-through to core inflation, which may reduce pressure on the Fed to hike rates, a mildly positive signal for equities. However, the conflict shows no signs of de-escalation, with Iran asserting control over the strait and the US threatening to declare it a US territory, keeping the risk premium elevated.