Oil Rises as US-Iran Tension Escalates After Iraq Strikes, Missile Attack

Oil prices surged on Wednesday, with Brent futures gaining 3.8% to $87.24 a barrel and US West Texas Intermediate (WTI) crude rising 3.4% to $81.99. The market reacted to a series of escalating events in the Middle East, including joint strikes by the United States and Saudi Arabia on Iran-backed groups in Iraq and the US military's interception of Iranian ballistic missiles aimed at its forces.

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Renewed strength comes after the US said it intercepted a surprise attack on US troops.

These developments have dampened expectations for a quick de-escalation in the Gulf region. The strikes in Iraq were a response to drone attacks on Saudi oil facilities, which the US and Saudi Arabia attributed to Iran-backed groups. The situation was further complicated by Iran ruling out a proposal from Oman and Gulf states for joint management of the Strait of Hormuz, a critical waterway for global oil shipments.

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We believe Brent oil prices will continue to whipsaw in the $80-$100 per barrel range in the near term as the conflict ebbs and flows in the Middle East.

Analysts suggest that oil prices are likely to remain volatile, trading within the $80-$100 per barrel range in the near future. "This series of stop-start negotiations means a complete removal of the Strait of Hormuz blockade is not achieved, and oil prices could see higher floor of around $80 per barrel even under a de-escalation scenario," noted Suvro Sarkar, head of energy research at DBS Bank. Adding to market tightness, US crude inventories fell by approximately 3.3 million barrels in the week ended July 24, according to preliminary data from the American Petroleum Institute.

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This series of stop-start negotiations means a complete removal of the Strait of Hormuz blockade is not achieved, and oil prices could see higher floor of around $80 per barrel even under a de-escalation scenario.