Key Takeaways
- Brent crude futures rose 7.91% to $90.74 a barrel.
- US and Saudi Arabia launched strikes on Iran-backed groups in Iraq.
- Iranian attacks on ships and US bases raise concerns over supply disruptions.
Oil prices surged by about 7 percent on Wednesday, with Brent crude futures settling at $90.74 a barrel after climbing 7.91 percent. This increase came amid heightened tensions in the Middle East following airstrikes and retaliatory attacks.
The US and Saudi Arabia launched strikes against Iran-backed groups in Iraq, blaming them for recent drone attacks on Saudi oil facilities. These actions followed reports of averted Iranian attacks on US troops in the region. The strikes were carried out hours after the US military reported thwarting an impending surprise attack by Iran.
In response to these developments, President Donald Trump promised further strikes against Iran during an interview with Fox News. Additionally, the US Treasury Department issued new sanctions targeting 10 entities and eight more tankers involved in Tehran’s efforts to monetize the Strait of Hormuz.
The escalating tensions have raised concerns about potential disruptions to oil supplies. In Egypt, explosions hit a natural gas loading port on the Mediterranean Sea, while British maritime security company Ambrey reported that a US-owned floating storage tanker was struck by a drone at the same location. These incidents underscore the growing risks in the region.
The Strait of Hormuz remains a focal point for these concerns. Iran has rejected Oman’s proposal for regional joint management of the strait, according to a senior Iranian official. Meanwhile, only a few commodity ships have transited the strait this week, with five passing through on Wednesday and 39 on Tuesday – the highest number since July 19.
China has held direct talks with Iran’s Houthi militants to enable its tankers to sail through the region without being attacked. However, Scott Shelton from TP ICAP noted that while the success in stopping flows through the Bab el-Mandeb is not as effective as in the Strait of Hormuz, more ships are entering than exiting.
Analysts also pointed out that US crude oil inventories fell last week due to robust energy exports and firm domestic demand. Crude stockpiles dropped by 7.2 million barrels to 404.5 million barrels, marking the lowest level since 2018.
John Kilduff from Again Capital stated, 'The market is rapidly pricing in the enhanced risk to supplies in the region once again.' Suvro Sarkar of DBS Bank added that Brent oil prices are likely to continue fluctuating between $80 and $100 per barrel in the near term as the conflict ebbs and flows.
'The market is rapidly pricing in the enhanced risk to supplies in the region once again.'
John Kilduff, Partner at Again Capital
'We believe Brent oil prices will continue to whipsaw in the USD 80-USD 100 per barrel range in the near term as the conflict ebbs and flows in the Middle East.'
Suvro Sarkar, Head of Energy Research at DBS Bank
