Oil prices rose by about $3 a barrel during trading on Wednesday, driven by escalating military tensions in the Middle East, after the United States and Saudi Arabia carried out joint strikes inside Iraq, along with Washington's announcement that it had intercepted Iranian ballistic missiles that were targeting its forces in the region, coinciding with a decline in US crude oil inventories.
Brent crude futures rose $3.15, or 3.8%, to $87.24 a barrel by 05:20 GMT.
US West Texas Intermediate (WTI) crude also rose by about $2.73, or 3.4%, to $81.99 a barrel.
ING Bank analysts said in a research note that the new surge came after the United States announced it had thwarted a surprise attack targeting its forces in the region, noting that these recent developments have weakened expectations of a quick de-escalation in the Gulf region.
Exchanges of military strikes increase concerns about supplies.
On Wednesday, the United States and Saudi Arabia launched strikes targeting Iranian-backed groups inside Iraq, after blaming those groups for drone attacks targeting Saudi oil facilities.
Iran responded to these accusations by warning that holding it responsible for those attacks was a major miscalculation, indicating the potential for escalating regional tensions.
These strikes came just hours after the US military announced it had successfully thwarted a surprise Iranian attack targeting US forces deployed in the Middle East.
These developments have revived concerns in energy markets, with growing worries that military escalation could lead to renewed disruption in oil supplies from the region.
The Strait of Hormuz crisis worsens after the Omani proposal was rejected.
In a sign of continued tension in one of the world's most important shipping lanes, only five cargo ships passed through the Strait of Hormuz on Tuesday, as oil tanker traffic through the strategic waterway remained low.
Oman had presented Iran with a plan, backed by the Gulf states, to manage shipping traffic in the strait, which included imposing voluntary fees on ships for its use, according to a Gulf source and a Western diplomat who spoke to Reuters.
But a senior Iranian official confirmed on Wednesday that Tehran had rejected the Omani proposal for joint regional management of the Strait, which reduces the chances of reaching an agreement in the near future.
The Strait of Hormuz is of exceptional importance, as before the outbreak of war, about one-fifth of the world’s crude oil and natural gas shipments passed through it, making any disruption to navigation through it a direct impact on global energy markets.
Expectations are for continued fluctuations between $80 and $100.
Suvro Sarkar, head of energy research at DBS Bank, said he expects Brent crude prices to continue moving within a wide range of $80 to $100 a barrel in the near term, as the ebb and flow of the ongoing conflict in the Middle East continues.
He added that the geopolitical landscape has become more complicated after US President Donald Trump indicated this week the possibility of returning to the diplomatic track.
He explained that the repeated rounds of negotiations that start and then stop mean that ending the blockade imposed on the Strait of Hormuz completely is still far from being achieved, which may keep oil prices at a high floor of nearly $80 a barrel even if the intensity of the military escalation decreases.
Declining US inventories and OPEC+ forecasts provide additional support.
In addition to geopolitical developments, oil prices received support from US inventory data, as market sources, citing data from the American Petroleum Institute, reported that US crude oil inventories fell by about 3.3 million barrels during the week ending July 24.
Markets are awaiting the release of official inventory data from the U.S. Energy Information Administration later on Wednesday, as it has a direct impact on supply and demand forecasts in the world's largest oil consumer.
Prices also received additional support from expectations that the OPEC+ alliance may halt oil production increases for three months starting in October, after completing the return of planned volumes to the market following the voluntary cuts implemented by alliance members.
Observers believe that the combination of ongoing geopolitical tensions, the possibility of tighter supplies from OPEC+, and declining US inventories creates a mix of factors supporting oil prices, which could keep the market highly volatile in the coming weeks.
