Oil prices jumped more than 4% on Wednesday after the United States and Saudi Arabia struck Iran-backed groups in Iraq and the U.S. military intercepted an Iranian missile attack on its forces. Brent reached $87.81 a barrel and WTI $82.69, with falling U.S. crude inventories and a likely OPEC+ pause adding support.
Oil prices jumped more than 4% on Wednesday as tension in the Middle East escalated following U.S. and Saudi strikes in Iraq and an intercepted Iranian missile attack on U.S. forces, while U.S. crude inventories fell. Brent futures rose $3.72, or 4.4%, to $87.81 a barrel by 1025 GMT, and U.S. West Texas Intermediate crude gained $3.43, or 4.3%, to $82.69 a barrel.
That rebound followed Tuesday's session, when U.S. crude fell 4.1% to $79.26 a barrel as the U.S. and Iran paused attacks.
Strikes in Iraq follow an intercepted missile attack
The United States and Saudi Arabia launched strikes on Iran-backed groups in Iraq on Wednesday, blaming them for drone attacks on Saudi oil facilities. The strikes came hours after the U.S. military said it had averted a surprise Iranian attack on U.S. troops in the region.
Iran, meanwhile, said it had fired on ships in the Strait of Hormuz and at U.S. bases in Jordan. Suvro Sarkar, head of energy research at DBS Bank, said the situation has escalated since U.S. President Donald Trump signalled a return to diplomacy earlier in the week.
Tehran rejects Oman's Hormuz proposal
Tehran has ruled out Oman's proposal for regional joint management of the Strait of Hormuz, a senior Iranian official told Reuters on Wednesday, scuppering hopes for a resolution to the impasse that has choked off Gulf trade for months. UBS analyst Giovanni Staunovo tied the move in prices to renewed military strikes and to Iran's stated aim over Hormuz shipping: "Iranian officials reiterating that they want to control shipping activity through the Strait of Hormuz".
Only a few commodity ships have transited through the Strait of Hormuz so far this week, while five transited the Bab el-Mandeb strait, an alternative route for Saudi oil shipments to Asia, on Wednesday and 39 on Tuesday. Tuesday's total was the highest since July 19, just before Yemen's Iran-backed Houthi militants announced a maritime blockade of Saudi Arabia. That group is also considering imposing fees on commercial ships sailing through the southern Red Sea, regional sources with knowledge of the matter told Reuters.
Inventories fall and OPEC+ may pause increases
U.S. crude oil inventories fell by about 3.3 million barrels in the week ended July 24, market sources said on Tuesday, citing data from the American Petroleum Institute. Official inventory data from the Energy Information Administration was due later on Wednesday.
Further supporting prices, OPEC+ is likely to halt output increases for three months starting in October, sources told Reuters, after the producer group completes the scheduled return of barrels following voluntary cuts. Sarkar expects Brent to whipsaw in the $80-$100 per barrel range in the near term as the conflict ebbs and flows in the Middle East.
Because stop-start negotiations mean a complete removal of the Hormuz blockade is not achieved, he said, oil prices could see a higher floor of around $80 per barrel even under a de-escalation scenario.
Sources: Investing.com, Investor's Business Daily
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