Global oil prices jumped by more than 3% on Wednesday as renewed military tensions between Iran and the United States triggered fears that a fragile ceasefire could collapse and disrupt crude supplies from the Middle East. Brent crude futures rose by $2.40, or 3.2%, to $76.56 per barrel at 0645 GMT, while U.S. West Texas Intermediate (WTI) crude gained $2.26, also 3.2%, to trade at $72.70 per barrel. Both benchmarks had already climbed by about 3% on Tuesday after Washington withdrew a licence that had allowed the sale of Iranian crude.
Analysts said the decision to reimpose sanctions on Tehran was significant mainly because of its impact on market confidence. ING commodity strategists noted that, although the move does not significantly alter the broader oil market outlook, it increases concerns that the temporary agreement between the U.S. and Iran could collapse.
“While the revocation doesn't fundamentally change oil market dynamics, it's important from a sentiment perspective. It heightens the risk of a breakdown in the temporary deal between the U.S. and Iran,” the ING commodity strategists said.
The latest escalation followed U.S. airstrikes carried out in response to Iranian attacks on three commercial vessels travelling through the Strait of Hormuz, according to the U.S. Central Command. Iran’s Revolutionary Guards later claimed responsibility for strikes targeting American military facilities in Bahrain and Kuwait early Wednesday.
“The current conflagration is a reminder to the market of how fragile passage through the Strait still is,” Saul Kavonic, head of research at MST Marquee, said.
Kavonic added that the renewed tensions could challenge expectations of a potential oversupply in the oil market, forcing some investors who had placed large bets on falling prices to reconsider their positions.
“This presents a contrary indicator to the prevailing sentiment that the market could be flooded into oversupply, which may scare some of the record short positioning to cover,” he said, warning that prolonged disruptions and reduced shipping activity through the Strait of Hormuz could push prices higher.
Oil prices had previously fallen sharply after the United States and Iran reached a truce agreement last month, with crude returning to levels seen before the conflict. Traders had built up significant short positions, expecting large volumes of Middle Eastern oil supply to return to global markets.
The latest vessel attacks have reignited fears over shipping security in the Strait of Hormuz, a crucial energy route that transported cargoes equivalent to around one-fifth of global energy supplies before the conflict began in February.
Although Iran denied responsibility for the attacks, Qatar accused Tehran of involvement, including an incident involving a Qatari liquefied natural gas tanker that was reportedly hit by a drone, causing a fire in its engine room. A Saudi-flagged crude tanker, believed to be the supertanker Wedyan, was also damaged near Oman, though the cause remained unclear.
Iran has continued to assert control over the strategic waterway, directing ships to use routes closer to its coastline rather than those nearer Oman. The United States, however, has insisted that the Strait must remain open to international shipping as it was before the conflict.
Meanwhile, countries have relied on their oil reserves to cushion the impact of supply disruptions since the outbreak of hostilities. U.S. crude inventories also declined again last week, according to data from the American Petroleum Institute, with analysts expecting stockpiles to fall by about 2.4 million barrels in the week ending July 3. Reuters
