Key Takeaways
- Brent crude futures climbed 33 cents to $85.28 a barrel.
- US strikes on Iranian military installations fuel fears of wider conflict.
- Analysts predict oil could rise to $85-$87 depending on how the conflict develops.
Oil prices surged for a fourth consecutive day, reaching new one-month highs, as tensions in the Middle East escalated following US strikes on Iranian military installations. The United States targeted Iran’s coastal defences and missile sites on Wednesday, reimposing a naval blockade of its ports. In response, Iran threatened to shut off more regional energy exports, stating it was engaged in an existential war with America.
The rise in oil prices is attributed to heightened fears of supply disruptions in the Strait of Hormuz, a critical artery for global oil and liquefied natural gas trade. The US military confirmed that its aircraft had fired on a ship attempting to break Iran’s ports blockade. Analysts at Nissan Securities Investment noted that with tensions flaring up again, buying is taking the lead.
Oil prices have gained this week as attacks deepened supply disruption in the Strait of Hormuz, which handled about one-fifth of global oil and liquefied natural gas trade before the conflict began. The US Energy Information Administration reported a 1.7 million-barrel decrease in crude inventories for the week ending July 10, lower than expected.
Goldman Sachs warned that Brent could exceed $110 in the fourth quarter if the Gulf export recovery continues to stall. However, the bank also noted that oil prices could fall into the $60s by year-end if tensions ease and production recovers faster than anticipated. The analysts highlighted the potential risk posed by Iran’s Houthi allies in Yemen, who might use the Bab el-Mandeb gateway to the Red Sea as a new front against Washington.
Chief Strategist of Nissan Securities Investment, Hiroyuki Kikukawa, stated: 'While mediation efforts by neighbouring countries continue and the consensus view is that a full-scale war is unlikely, WTI could still rise to $85-$87 depending on how the conflict develops.'
The ongoing hostilities between Iran and the US have frayed an already fragile truce reached in June after several months of fighting. Analysts predict that oil prices will remain volatile as the situation continues to unfold.
As the world watches, the potential for a wider conflict looms large over global energy markets, with oil prices poised to continue their upward trajectory until the geopolitical situation stabilizes.
'While mediation efforts by neighbouring countries continue and the consensus view is that a full-scale war is unlikely, WTI could still rise to $85-$87 depending on how the conflict develops.'
Hiroyuki Kikukawa, Chief Strategist of Nissan Securities Investment
