Oil Surges on Renewed Iran Strikes
Oil jumped to a two-week high after the US renewed attacks on Iran and President Donald Trump said an interim peace deal is over, heightening concerns about the free flow of crude from one of the world's most important energy-producing regions.
Brent futures climbed more than 5% to settle at $78.02 a barrel, after briefly topping $80 during the session, while West Texas Intermediate also surged the most in five weeks to close around $73.50.
Trump warned oil prices could rise further as the administration mulls further strikes on Iran that may include a "take over" of Iran's key oil export hub of Kharg Island. Iran, for its part, threatened to close the Strait of Hormuz in response, state-run Press TV reported.
Crude prices eased from intraday highs after the US leader said he doesn't foresee a return to all-out war.
Overnight, US forces struck more than 80 targets after Iranian attacks on merchant ships a day earlier. Those incidents, which targeted a Qatari liquefied natural gas carrier and two large oil tankers, marked the biggest day of attacks since the memorandum of understanding came into effect less than a month ago.
"This skirmishing is really driven by ambiguity in the MOU and around what kind of status Iran is going to have in the Strait of Hormuz," said Gregory Brew, geopolitical analyst at the Eurasia Group. "The upshot is more violence, though likely not a return to full-scale hostilities, and traffic through the Strait taking a lot longer to return to pre-war levels."
Oil's rebound signals the potential for a fresh wave of disruptions for global energy markets still reeling from the biggest supply disruption in history. The renewed hostilities stand to complicate decisions facing shipowners and regional producers over navigating the waterway that links top OPEC producers in the Persian Gulf to global markets.
Refined products also extended their rally Wednesday, with diesel surging as much as 14% after Russia banned diesel exports. Fuel prices have been resilient in recent weeks even as crude futures slumped, supported by Ukraine's intensifying attacks on Russian energy infrastructure and tight global refining capacity following the Hormuz shutdown.
Traders also followed US oil inventory data published Wednesday by the Energy Information Administration that showed the first increase in domestic crude stocks since April. The recent streak of declines was broken after exports slumped to the lowest since November as US supplies compete with discounted Middle Eastern barrels returning to the market.
Still, commercial oil inventories in the US remain at the lowest in about four years, raising expectations that America may not be able to sustain its role as a supplier of last resort to the world for much longer if tensions rise again.
Oil Prices
- Brent for September settlement rose 5.2% to settle at $78.02 a barrel in New York.
- WTI for August delivery gained 4.4% to settle at $73.52.
Even during the ceasefire, there were significant tensions around the critical energy chokepoint. Iran has insisted it controls the waterway and that transits without its permission aren't valid. Tehran told the UN's shipping watchdog on Tuesday that it has the right to control parts of the strait.
Before the strikes, the US Treasury revoked a sanctions waiver that had allowed Tehran to sell oil, reversing course on a key part of the interim deal. The agreement to lift sanctions on Iran saw millions of barrels of the country's crude flood out of the Persian Gulf in recent weeks, much of which is now in limbo.
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