Oil prices surged by more than 3% on Wednesday after military tensions in the Middle East intensified following joint U.S. and Saudi strikes against Iran-backed groups in Iraq, an intercepted Iranian missile attack targeting U.S. forces, and signs of tightening U.S. crude supplies.
Brent crude futures climbed $3.04, or 3.6%, to $87.13 a barrel by 08:24 GMT, while U.S. West Texas Intermediate (WTI) crude rose $2.80, or 3.5%, to $82.06 a barrel.
Commenting on the latest price move, UBS analyst Giovanni Staunovo said: “Renewed military strikes in the Middle East and Iranian officials reiterating that they want to control shipping activity through the Strait of Hormuz amid depressed oil flows through the Strait are lifting oil prices again.”
Military Escalation Fuels Supply Concerns
The latest rally followed coordinated U.S. and Saudi military strikes on Iran-backed groups operating in Iraq, after Washington and Riyadh accused them of carrying out recent drone attacks on Saudi oil facilities.
The operation came only hours after the U.S. military announced it had intercepted what it described as a surprise Iranian missile attack targeting American troops stationed in the region.
Diplomatic efforts also suffered a setback after a senior Iranian official told Reuters that Tehran had rejected Oman’s proposal for joint regional management of the Strait of Hormuz, reducing hopes of resolving a standoff that has disrupted Gulf shipping for several months.
Strait of Hormuz Remains Under Pressure
Shipping activity through the Strait of Hormuz remained limited during the week, with only a small number of commodity vessels using the strategic waterway.
By contrast, traffic through the Bab el-Mandeb Strait, an alternative route for Saudi crude exports to Asia, increased significantly. Five vessels passed through on Wednesday, following 39 on Tuesday, the highest daily figure since July 19, shortly before Yemen’s Iran-backed Houthi movement announced a maritime blockade targeting Saudi Arabia.
According to DBS Bank, volatility in crude prices is likely to persist.
Suvro Sarkar, Head of Energy Research at DBS Bank, said: “We believe Brent oil prices will continue to whipsaw in the $80-$100 per barrel range in the near term as the conflict ebbs and flows in the Middle East.”
He added that geopolitical tensions have intensified despite earlier signs that U.S. President Donald Trump was prepared to return to diplomatic negotiations.
“This series of stop-start negotiations means a complete removal of the Strait of Hormuz blockade is not achieved, and oil prices could see higher floor of around $80 per barrel even under a de-escalation scenario.”
Falling U.S. Inventories Add Support
Oil prices also received support from tightening U.S. crude inventories.
According to market sources citing data from the American Petroleum Institute, U.S. crude stockpiles declined by approximately 3.3 million barrels during the week ending July 24.
Investors are now awaiting official inventory figures from the U.S. Energy Information Administration, scheduled for release later on Wednesday.
Additional support came from expectations that OPEC+ could suspend planned production increases for three months beginning in October, after completing the scheduled return of previously withheld output, according to Reuters sources.