Oil prices settle up more than US$4 a barrel on renewed US-Iran fighting

Oil prices surged more than US$4 per barrel on Tuesday (Sep 1), reaching a five-week high, due to fears of Middle East supply disruptions following renewed fighting between the US and Iran. Brent futures increased by US$4.16, or 4.6%, to US$94.65 a barrel, while US West Texas Intermediate (WTI) crude rose by US$4.46, or 5.2%, to US$90.22.

This was the highest close for Brent since July 24 and for WTI since July 23. The US launched new air strikes on Iranian targets, putting an end to hopes that the exchange of fire last weekend might not lead to a wider resumption of hostilities. Oil prices had already risen after the initial direct attacks since July and after reports of two tankers being hit in the Strait of Hormuz, a critical global oil supply route that Iran has effectively closed to shipping.

Tehran expressed defiance, warning it would prevent oil exports from the Gulf, despite threats from US President Donald Trump to retaliate harshly and warnings from US Treasury Secretary Scott Bessent that Washington would impose new sanctions. The US began airstrikes against Islamic Revolutionary Guard Corps targets in Iran, following recent attempts by the IRGC to target commercial shipping in the Strait of Hormuz and American service members deployed in the region.

Analysts warned of potential prolonged disruptions to energy flows through the Strait of Hormuz, which could impact refineries worldwide, particularly in the Middle East and Russia. Diesel prices in the US surged to a 52-month high on Tuesday, following a 51% increase over the past 10 weeks, boosting refining profit margins to a record high of around US$107 a barrel.

Russia, the world's third-largest crude oil producer, was also involved in intense air strikes on Ukraine, marking the sixth consecutive day of strikes on the Ukrainian capital. The oil market is watching for weekly storage reports from the American Petroleum Institute on Tuesday and the US Energy Information Administration on Wednesday.

Energy firms pulled 0.8 million barrels of crude from storage during the week ending Aug 28, marking the first decline in five weeks.