Oil pushed higher after the biggest gain in three weeks on Monday, as fresh hostilities between the US and Iran raised concerns about prolonged disruptions to energy flows through the Strait of Hormuz.
West Texas Intermediate traded above $86 after advancing 2.8 per cent in the previous session, while Brent settled near $90 on Monday. US forces hit an island in Hormuz, and Iran retaliated with attacks on the United Arab Emirates and Jordan, marking the first exchange of fire in about a month.
Crude eked out a marginal increase in August after a volatile month, with prices buffeted by stop-start efforts to end the war, including pledges by the US to cripple Iran’s economy. President Donald Trump dismissed concerns the conflict was draining American firepower, characterising it as a “little war.”
Iran targeted American air bases in Jordan, although local media reported the missiles were intercepted and destroyed before causing any damage. Trump told Fox News on Monday that the US would respond to attacks on American forces, raising the prospect of a cycle of military escalation.
“Traders reduced net crude oil positioning over the week as uncertainty persisted around the next phase of the Iran conflict,” said Bart Melek, global head of commodity strategy at TD Securities. “We continue to expect crude prices to move higher, as there are no signs that normal transit through the Strait of Hormuz will resume in the near term.”
Several current and former US and Iranian officials have said they expect the conflict to drag on for months. Hostilities in West Asia, as well as the war between Russia and Ukraine, caused refined-product prices to rally even more sharply than crude as supplies tighten, particularly for diesel.
Crude exports are still moving through Hormuz, often on tankers with their transponders switched off to avoid detection. Persian Gulf producers including the UAE, Saudi Arabia, Kuwait and Iraq are all getting some barrels out.
Even so, vessels transiting the waterway face a constant threat of attack. A tanker reported being struck by three unidentified projectiles while moving outbound through Hormuz near Oman, according to the UK Maritime Trade Operations, underscoring the risks to shipping in the region.
Separately, Abu Dhabi National Oil Co. has restored its Ruwais refinery to full capacity after it was damaged earlier in the war, according to people familiar with the situation. The facility, one of the world’s biggest, has been running at its full potential for about a month, boosting exports of diesel and jet fuel.
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