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Oil Trading Higher as Fresh Fighting in the War on Iran Threatens to Prolong the Energy Supply Shock

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Oil prices rose early on Thursday as the United States launched a new round of attacks on Iran, ending a ceasefire between the two and keeping the Strait of Hormuz blocked for most shipping.

West Texas Intermediate crude oil for July delivery was last seen up US$0.75 to US$90.78 per barrel, while July Brent oil was up US$0.41 to US$93.51.

U.S. President Trump on Wednesday ordered fresh strikes on Iranian targets amid frustration Iran is stalling negotiations to end the war that has produced the largest ever energy supply shock. Iran responded by launching attacks on Kuwait, Jordan and Bahrain. Iran also said it will completely close the Strait of Hormuz, keeping oil exports from the Persian Gulf nations that supplied a fifth of daily oil demand mostly off the market.

The Wall Street Journal reported the fighting came as Trump said Iran is "playing us for suckers" as he looks to force the country to resume negotiations over its nuclear stockpiles. U.S. forces had been accompanying tankers through the Strait, with Bloomberg reporting ships carrying more than 100-million barrels of oil have passed through the waterway since it began protecting shipping in the region, though renewed fighting may heighten the risk to shipping.

"US forces struck targets in Iran for a second consecutive day. Renewed hostilities threaten to prolong the near-total closure of the Strait of Hormuz, which has severely disrupted flows of crude oil, refined fuels, and natural gas since the conflict escalated in late February," Saxo Bank noted.

The lack of supply is cutting into oil inventories, with the Energy Information Administration on Wednesday reporting U.S. commercial oil inventories fell by 7.2-milllion barrels last week, well above the consensus estimate for a 4.0-million barrel drop among analysts polled by Reuters.

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