The prices of the crude oil grades climbed over 4 per cent on Tuesday as the Iran-Israel conflict heightened, raising worries even though major oil and gas infrastructure and flows have not been affected.
Brent crude futures settled at $76.45 a barrel after it gained $3.22 or 4.4 per cent and the US West Texas Intermediate crude future finished at $74.84 a barrel, up by $3.07 or 4.28 per cent.
The continuing exchange of airstrikes between Israel and Iran returned geopolitical risk to oil markets already aware of a tight supply and demand balance.
Traders are also weighing the possibility of a US strike on Iran, which has intensified since Israel began its attacks last week as some believe that the US possesses weapons capable of destroying Iranian enrichment facilities buried deep underground.
Also, a collision of two oil tankers near the Strait of Hormuz, where electronic interference has increased during the conflict, highlighted the possibility that the vital waterway for oil shipments could be cut off.
However, market analysts say that there is little possibility of closing the waterway, given that Iran would lose revenue and the US wants lower oil prices and lower inflation.
Despite the potential for disruption, there were signs oil supplies remain ample amid expectations of lower demand.
Israel’s assault on Iran’s military leadership and nuclear facilities poses the greatest threat in decades to the Islamic Republic’s leadership. The regime has endured “blow after blow” since the Israel-Hamas war erupted in October 2023, The New York Times wrote, including the weakening of its proxies in Lebanon, Gaza, and Yemen.
In its monthly oil report on Tuesday, the International Energy Agency (IEA) revised its world oil demand estimate downwards by 20,000 barrels per day from last month’s forecast and increased the supply estimate by 200,000 barrels per day to 1.8 million barrels per day.
The American Petroleum Institute (API) estimated that crude oil inventories in the US fell sharply, by 10.133 million barrels in the week ending June 13. The API reported a 337,000 barrel inventory decrease in the prior week.
So far this year, crude oil inventories are up 7.6 million barrels.
Official data from the US Energy Information Administration (EIA) will be released later on Wednesday.