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US Oil Update: Crude Rallies as US-Iran Renewed Fighting, Tanker Attacks Stoke Supply Fears

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Crude oil futures surged over 4% in midday trading on Tuesday as renewed fighting between the US and Iran and attacks on tankers heightened concerns that disruptions to energy flows through the Strait of Hormuz could persist.

Front-month West Texas Intermediate crude rose by 4.5% to $89.65 per barrel, while Brent futures climbed 3.9% to $94.02/bbl.

Soojin Kim, research analyst at MUFG, said that Brent crude rose to about $91/bbl and WTI above $86/bbl, as renewed US-Iran hostilities heightened concerns over disruptions to Persian Gulf energy flows.

Hostilities in the Middle East remain elevated after President Trump reportedly threatened Tehran with further strikes on Monday.

On Monday, Iran launched an attack on American bases in Jordan and the UAE in retaliation for the US strike on the country's Larak Island. The US forces targeted two Iranian rocket launchers on Larak Island on Sunday, claiming that Tehran intended to launch rockets carrying sea mines into the strait.

Fueling bullish sentiment, the UK Maritime Trade Operations Center said that a tanker was struck by three unknown projectiles while transiting Hormuz on Monday. The maritime security agency said the tanker was sailing in the southern shipping lane near the Omani coast.

The UKMTO also said that it had received a report of an incident involving a tanker and military forces in the Indian Ocean, off the Omani coast.

Gelber & Associates strategists said that the two supertankers carrying Saudi crude were each carrying about 2 million barrels. The analysts said that the near-simultaneous attacks raised doubts about the safety of the Omani corridor being used to move barrels through the disrupted waterway.

On the supply side, commercial shipping through the strategic waterway plunged by half at the end of August, the latest data from Kpler showed on Tuesday, with five confirmed vessel crossings on Aug. 31, down from 10 a day earlier. Four vessels entered the Middle East Gulf while one exited.

Tempering the rally, Iran said it would reciprocate if the US honored its commitments under a June interim deal to halt the conflict.

Iranian President Masoud Pezeshkian struck a milder tone on Monday, telling Pakistani Prime Minister Shehbaz Sharif on the sidelines of a regional security meeting in Kyrgyzstan that Tehran still sought a negotiated resolution of the conflict.

Pezeshkian said that Iran would immediately reciprocate if the US agreed to return to its commitments under the interim deal signed in June.

Going forward, Kim said that persistent geopolitical tensions and tanker attacks are likely to keep a risk premium embedded in oil prices, with the ability of Gulf producers to maintain exports remaining the key factor.

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