Oil price hits$85 as Iran,U.S., Israel conflict escalates

Oil prices settled up around five per cent yesterday, extending a rally as the escalating U.S.-Israeli war with Iran disrupted supplies and shipping, driving some major producers in the Middle East to reduce output.

Brent crude settled up $4.01, or 4.93 per cent, at $85.41 per barrel; while US West Texas Intermediate (WTI) crude settled up $6.35, or 8.51 per cent, to $81.01, its highest since July 2024.

“There is no movement in the Strait of Hormuz so prices will grind higher, and with countries having to shut in production then we will be delayed even longer because it is not like you can just resume production at full strength, that will be a problem for a while,” said John Kilduff, partner at Again Capital.

Crude oil supplies from Iraq and Kuwait could start shutting within days if the Strait of Hormuz remains closed, potentially cutting 3.3 million barrels per day by day eight of the conflict, JPMorgan analysts said in a note.

Around a fifth of global oil flows through the Strait.

“Crude prices are going to be very sensitive to the Strait’s closure as eventually production in the exporting areas will slow and if this persists into next week, the eventual re-starting of production and re-vamping of shipping once the Strait is re-opened will also take time to get back online,” said Dennis Kissler, senior vice president of trading at BOK Financial.

Iraq, the second-largest crude producer in the Organisation of the Petroleum Exporting Countries, has cut output by nearly 1.5 million ⁠bpd for lack of storage and an export route, officials told Reuters.

Qatar, the biggest liquefied natural gas producer in the Gulf, declared force majeure on gas exports on Wednesday, with sources saying a return to normal production volumes may take at least a month.

Attacks on oil tankers continued yesterday in the Gulf, as the Bahamas-flagged crude oil tanker Sonangol Namibe reported its hull was breached after a blast near Iraq’s port of Khor al Zubair.

Those attacks, along with Chinese measures to reduce fuel exports, pushed prices higher, said UBS analyst Giovanni Staunovo. The ⁠refined product market is also showing signs of stress due to missing Middle East exports, he added.

Some oil refineries in the Middle East, China and India shut their crude units because of the raging conflict in the Middle East.

As a result of a lower supply outlook in fuel markets, U.S. diesel futures jumped 10 per cent, reaching just over $3.60 a gallon during the session.

Around 300 oil ⁠tankers remained inside the Strait of Hormuz after vessel traffic in and out of the chokepoint nearly halted following the outbreak of war, according to ship tracking data from Vortexa and Kpler that excludes some of the smallest tankers.

Advertisement

Iran launched a wave of missiles at Israel early yesterday, sending millions of residents into bomb shelters as the conflict ⁠entered its sixth day, and just hours after moves to halt the U.S. attacks were blocked in Washington.

On Wednesday, a U.S. submarine sank an Iranian warship off Sri Lanka, killing at least 80 people, and NATO air defences destroyed an Iranian ballistic missile fired towards Turkey.