Oil prices extend gains as US and Iran trade fresh strikes

Both contracts soared more than $4 on Tuesday, marking Brent's largest gain ​since July 24 and WTI's largest since July 23. The US said it had launched a series of airstrikes against ​targets in Iran overnight, prompting a response from Tehran, in the most serious escalation of ⁠the conflict between the two countries in weeks.

The Islamic Revolutionary Guard Corps said the US attacks would further restrict ​traffic through the Strait of Hormuz, a critical waterway that carried about one-fifth of the global oil consumed before ​the conflict and which Iran has effectively closed to commercial shipping. "Developments in recent days brought risks to regional oil supplies back into focus...

We’ve seen oil flow through the Strait of Hormuz despite the stalemate between the US and Iran, but rising tensions clearly put ​crossings at risk," said ING analysts in a client note.

The IRGC also said it had targeted a US military base ​in Jordan with ballistic missiles that it claimed had killed a large number of US forces, while Iranian state media reported a ‌large-scale drone ⁠attack on a US base in Bahrain in response to the American strikes. Read:Oil prices rise as latest fighting revives Mideast supply disruption risks.

Jordan's military said its air defences intercepted 10 of 13 ballistic missiles that entered its airspace, while two US officials said no American casualties had been reported so far from the attacks. Separately, Kuwait said its armed forces were responding to hostile drone activity.

The latest exchange followed ​a weekend flare-up in hostilities, ​the first since July, ⁠and came after attacks on two tankers departing the Strait of Hormuz on Monday, causing further disruptions to oil supplies and forcing 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," said Priyanka Sachdeva, Phillip Nova's head of market insights.

"Until there is clear evidence that negotiations can produce a lasting resolution and that normal oil flows through the Strait are returning, the risk premium in crude is likely to ⁠remain elevated.

"Meanwhile, ​in the US, the world's largest oil producer, crude inventories fell by 2.6 ​million barrels in the week ended August 28, while distillate stocks, which include diesel and heating oil, declined by 265,000 barrels, market sources said, ​citing data from the American Petroleum Institute.