Global Oil Prices Surge Amid Escalating Mideast Tensions

Middle East Tensions Ease Oil Prices Amid Fresh Strikes in Persian Gulf

Oil prices advanced on Thursday, following a drop of more than 5% on Wednesday, as fresh strikes in the Persian Gulf heightened tensions between Washington and Tehran. The standoff over the Strait of Hormuz, a critical waterway for global oil supplies, remained unresolved.

Brent crude rose towards $97 a barrel, while West Texas Intermediate was near $91. The military escalation in the region came as American forces carried out airstrikes on a military site and targeted other areas near the Strait of Hormuz, according to a US official. Separately, Kuwaiti Air Defenses said they were responding to hostile missile and drone threats.

The conflict between the US and Iran, which has been ongoing for four months, has disrupted oil supplies and caused a steep jump in bond yields. Despite the challenges, crude is still on pace for a second weekly drop, fueled by optimism that the warring parties will manage to conclude at least an interim deal.

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The American Petroleum Institute reported a 2.8 million barrel drawdown in oil stockpiles last week, including a decline at the hub in Cushing, Oklahoma. Official data are due later Thursday.

Markets are pricing in the prospect of a deal, but the scope for the parties walking away from the negotiating table remains a clear risk, said Chris Weston, head of research at Pepperstone Group Ltd. in Melbourne. The failure to forge a deal to end the conflict is threatening to prolong the disruption to oil supplies, which has caused a steep jump in bond yields since late February by rekindling inflation.

Central banks, including the Federal Reserve, are expected to eventually raise interest rates in response. However, the oil market is currently very complacent, said Joe DeLaura, global energy strategist at Rabobank. He noted that releases from strategic petroleum reserves, as well as sharply lower imports by China, are helping to cushion part of the loss of supply caused by the war.

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The US Treasury has sanctioned the Persian Gulf Strait Authority, according to a statement, highlighting Tehran's push to collect tolls from vessels transiting the strait. The entity "spearheads an Iranian-controlled scheme that flagrantly violates international law," the Treasury said.