(Investing) – Oil prices pared back some earlier gains, but remained higher, as escalating strikes on key Middle East energy infrastructure heightened fears over expanded crude supply disruptions.
Brent oil futures, the global benchmark, spiked 3.5% to $111.13 a barrel by 10:18 ET (14:18 GMT). Earlier this morning, Brent futures climbed to roughly $119 a barrel, its highest level in over a week.
U.S. West Texas Intermediate crude futures rose 1.3% to $96.71 per barrel, with the gap between Brent and WTI touching its widest level in more than decade, due in part to the release of U.S. strategic oil reserves.
Oil extended steep advances from the prior session which were driven by air attacks on Iran’s South Pars field, the Iranian sector of the world’s largest natural gas deposit.
Iran retaliated by launching attacks on energy facilities in Qatar, the United Arab Emirates, and Saudi Arabia. Tehran had earlier threatened to attack Saudi Arabia’s Samfef and Jubail complexes, the United Arab Emirate’s Al Hisn gasfield, and Qatar’s Ras Laffan refinery.
U.S. President Donald Trump said in a strongly worded social media post that the U.S. did not know about Israel’s attack on South Pars, and warned Iran against further retaliation. Trump said Israel will not attack South Pars again, adding that the U.S. would “massively blow up” the gas field if Iran retaliated further.
The prospect of more attacks on Middle Eastern oil infrastructure ramped up concerns over supply constraints caused by the Iran war, especially as Tehran also kept the Strait of Hormuz, a key shipping channel, largely closed.
Reuters reported late-Wednesday that the Trump administration was considering deploying thousands of troops in the Middle East, with one of the potential goals being ensuring the safe passage of oil tankers through the Strait of Hormuz. Washington was also considering deploying troops to Iran’s Kharg Island, after it struck military targets on the oil export hub last week, Reuters reported.
Jefferies expects tensions to intensify further in the coming weeks, but believes both sides will aim to expose each other’s vulnerabilities before ultimately moving toward negotiations from a stronger position.
“A realistic scenario would be that the U.S. puts boots on the ground to take over the Kharg Island and force Iran into negotiations,” Jefferies’ Mohit Kumar said in a note. Kharg Island, a crucial hub for Iranian oil production that handles around 90% of the country’s output, was recently targeted by U.S. strikes.
Gains in oil came despite strength in the dollar, as markets also fretted over a more hawkish outlook for global interest rates due to higher energy prices. The U.S. Federal Reserve on Wednesday flagged uncertainty over energy-fueled inflation, while U.S. producer inflation data read stronger than expected.
Oil largely rose past data showing an unexpected weekly build in U.S. oil inventories.
Crude had briefly stalled its rally this week after reports showed Iraqi and Kurdish authorities agreed to resume oil flows through Turkey’s Ceyhan port. Major global economies were also seen planning to release oil from their emergency reserves to offset supply disruptions caused by the Iran war.
(Ambar Warrick, Senad Karaahmetovic and Maria Ponnezhath contributed to this article.)
