Oil prices rose in early European trading Monday as escalating attacks between the U.S. and Iran heightened concerns that already-disrupted energy flows through the Strait of Hormuz could face further pressure.
Front-month Brent crude oil futures rose 1.3% to $97.48 a barrel, while front-month West Texas Intermediate crude oil futures gained 1.2% to $92.61 a barrel.
The latest escalation came after the U.S. military struck three Iranian oil tankers Saturday following ballistic missile attacks by Iran toward two U.S. Navy warships. The American vessels avoided the attacks, and U.S. Central Command said no personnel were harmed. The Strait of Hormuz is a key waterway through which about a fifth of global oil supplies traditionally passes.
Crude prices are approaching $100 a barrel, with analysts warning that a deeper disruption to physical supplies could drive them higher. "A sustained disruption to actual crude flows could quickly push prices above $100 a barrel," analysts at brokerage firm Kotak Securities said. "Tightening inventories and stronger refined-product prices add support."
Goldman Sachs's Daan Struyven said Brent could climb to $120 a barrel if attacks on Middle East shipping intensify, while a normalization of regional exports could pull prices toward $80.
Analysts at MUFG said tanker traffic is becoming increasingly exposed to direct military action, and that the possibility of wider restrictions around Hormuz is keeping risks to Gulf energy exports elevated and a substantial geopolitical premium embedded in crude prices. Iran has also threatened to establish a new restricted maritime zone as the confrontation over shipping intensifies.
The disruption is also spilling into gas markets. European benchmark TTF prices rose more than 2% Monday as Qatari LNG exports remained severely constrained, with QatarEnergy extending force majeure on shipments to Edison through early November.
Still, significant Gulf crude continues to reach international markets. The U.S. naval blockade has prevented Iran from shipping oil from the Persian Gulf since July, while Washington has helped Gulf Arab producers move substantial amounts of crude through Hormuz despite Iranian missile and drone attacks, The Wall Street Journal reported last week.
ING said Iraq exported 2.35 million barrels a day in August, with about 2.26 million barrels a day leaving through southern routes that ultimately depend on Hormuz. Saudi Arabia also left the October official selling price for its flagship Arab Light crude unchanged, rather than raising it as expected, suggesting the physical market may not be as tight as previously thought.
European gasoil inventories have fallen to 1.61 million metric tons, while U.S. diesel cracks, a measure of refining margins, remain above $100 a barrel, according to ING. The pressure is also reaching U.S. motorists, with the national average gasoline price at $4.15 a gallon Monday, according to the American Automobile Association, a record high for Labor Day.
Meanwhile, key members of the Organization of the Petroleum Exporting Countries and its allies agreed Sunday to keep their production levels unchanged for October, following six consecutive months of increases.
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