Oil prices rose in early trade on Wednesday, extending the previous session’s surge, as concerns over supply disruption intensified after the U.S. and Iran exchanged strikes overnight, dimming hopes for a quick easing of tensions in the Middle East.
The renewed military hostilities between the two conutries have pushed crude oil prices above $95 per barrel for the first time in five weeks, raising concerns over potential disruptions to global oil supplies through the Strait of Hormuz.
Consequently, brent crude futures rose $1.03, or 1.1%, to $95.68 a barrel by 0605 GMT, and U.S. West Texas Intermediate crude futures climbed 61 cents, or 0.7%, to $90.83.
Both contracts soared more than $4 on Tuesday, marking Brent’s largest gain since July 24 and WTI’s largest since July 23.
The U.S. said it had launched a series of airstrikes against targets in Iran overnight, prompting a response from Tehran, in the most serious escalation of the conflict between the two countries in weeks.
The Islamic Revolutionary Guard Corps said the U.S. attacks would further restrict traffic through the Strait of Hormuz, a critical waterway that carried about one-fifth of the global oil consumed before the conflict and which Iran has effectively closed to commercial shipping.
“Developments in recent days brought risks to regional oil supplies back into focus … We’ve seen oil flow through the Strait of Hormuz despite the stalemate between the US and Iran, but rising tensions clearly put crossings at risk,” said ING analysts in a client note.
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The IRGC also said it had targeted a U.S. military base in Jordan with ballistic missiles that it claimed had killed a large number of U.S. forces, while Iranian state media reported a large-scale drone attack on a U.S. base in Bahrain in response to the American strikes.
Jordan’s military said its air defences intercepted 10 of 13 ballistic missiles that entered its airspace, while two U.S. officials said no American casualties had been reported so far from the attacks. Separately, Kuwait said its armed forces were responding to hostile drone activity.
The latest exchange followed a weekend flare-up in hostilities, the first since July, and came after attacks on two tankers departing the Strait of Hormuz on Monday, causing further disruptions to oil supplies and forcing traders to seek alternative crude shipments.
“The oil market is no longer pricing just the risk of war; it is increasingly pricing the cost of an unresolved war,” said Priyanka Sachdeva, Phillip Nova’s head of market insights.
“Until there is clear evidence that negotiations can produce a lasting resolution and that normal oil flows through the Strait are returning, the risk premium in crude is likely to remain elevated.”
Meanwhile, in the U.S., the world’s largest oil producer, crude inventories fell by 2.6 million barrels in the week ended August 28, while distillate stocks, which include diesel and heating oil, declined by 265,000 barrels, market sources said, citing data from the American Petroleum Institute.
