Oil prices extend gains as US and Iran trade fresh strikes

Oil prices climbed on Wednesday, building on the previous day's increase, as worries about supply disruptions grew after the United States and Iran launched strikes against each other, reducing hopes for a swift de-escalation of tensions in the Middle East. Brent crude futures increased by $1.03, or 1.1%, to $95.68 per barrel by 0605 GMT, while US West Texas Intermediate crude futures rose by 61 cents, or 0.7%, to $90.83.

Both contracts surged over $4 on Tuesday, representing Brent's largest gain since July 24 and WTI's largest since July 23.

The United States claimed to have carried out airstrikes on targets in Iran overnight, triggering a response from Tehran, marking one of the most significant escalations in the conflict between the two nations in recent weeks. The Islamic Revolutionary Guard Corps stated that the US attacks would further constrict traffic through the Strait of Hormuz, a vital waterway that transports approximately one-fifth of the global oil before the conflict and which Iran has effectively blocked to commercial shipping.

"Recent developments have brought risks to regional oil supplies back into focus," commented ING analysts in a client note. "We've observed oil flowing through the Strait of Hormuz despite the stalemate between the US and Iran, but heightened tensions clearly pose risks to crossings."

The Islamic Revolutionary Guard Corps also alleged that it had targeted a US military base in Jordan with ballistic missiles, claiming that the missiles killed a significant number of US forces. Iranian state media reported a large-scale drone attack on a US base in Bahrain in retaliation for the American strikes. Jordan's military reported intercepting 10 of the 13 ballistic missiles that entered its airspace, while two US officials confirmed that no American casualties had been reported thus far from the attacks.

Separately, Kuwait reported that its armed forces were responding to hostile drone activity. Major customers for Kuwait, such as Amazon and other cloud giants, are now developing their own chips. The latest exchange came after a weekend flare-up in hostilities, the first since July, and followed attacks on two tankers departing the Strait of Hormuz on Monday, further disrupting oil supplies and compelling traders to seek alternative crude shipments.

"The oil market is no longer pricing just the risk of war; it is increasingly pricing the cost of an unresolved war," stated Priyanka Sachdeva, head of market insights at Phillip Nova. "Until there is clear evidence that negotiations can result in a lasting resolution and that regular oil flows through the Strait are restored, the risk premium in crude is likely to stay elevated."

Meanwhile, in the United States, the world's largest oil producer, crude inventories declined by 2.6 million barrels in the week ending August 28, while distillate stocks, which consist of diesel and heating oil, fell by 265,000 barrels, according to data from the American Petroleum Institute.