Oil prices rose 0.8% in early trading on Wednesday, extending the previous session’s sharp gains as concerns grew over supply disruptions after the United States and Iran exchanged strikes overnight, dashing hopes that tensions in the Middle East would ease quickly.
Brent crude futures rose 75 cents, or 0.8%, to $95.40 a barrel by 03:45 GMT, while U.S. West Texas Intermediate crude futures gained 44 cents, or 0.5%, to $90.66. Both contracts surged by more than $4 on Tuesday, marking Brent’s biggest gain since July 24 and WTI’s largest since July 23.
The United States said it had launched a series of airstrikes against targets in Iran overnight, prompting an Iranian response in the most serious escalation in the conflict between the two countries in weeks.
Iran’s Revolutionary Guard said the U.S. attacks would further restrict movement through the Strait of Hormuz, a vital waterway through which about one-fifth of the world’s consumed oil passed before the conflict. Iran has effectively closed the strait to commercial shipping.
“Developments over the past few days have brought risks to regional oil supplies back into focus,” ING analysts said in a note to clients. “We saw oil continue to flow through the Strait of Hormuz despite the standoff between the U.S. and Iran, but the escalation clearly puts those flows at risk.”
The latest exchange of strikes followed an escalation in fighting over the weekend, the first since July, as well as attacks on two oil tankers leaving the Strait of Hormuz on Monday. The incidents caused further disruption to oil supplies and forced traders to seek alternative crude cargoes.
“The oil market is no longer pricing in just the risks of war, but increasingly the cost of an unresolved war,” said Priyanka Sachdeva, head of market forecasting at Phillip Nova.
“Until there is clear evidence that negotiations can lead to a lasting resolution and that normal oil flows through the strait are returning, we expect the risk premium in crude prices to remain elevated,” she added.
In the United States, the world’s largest oil producer, market sources citing American Petroleum Institute data said crude inventories fell by 2.6 million barrels in the week ended August 28. Distillate stocks, which include diesel and heating oil, declined by 265,000 barrels.
Source: Reuters
