Oil jumps more than 2% after US attack on Iran's Larak island

[SINGAPORE] Oil prices were trading more than 2 per cent higher on Monday (Aug 31) after the US attacked an Iranian island in the Strait of Hormuz and drew retaliation from Teheran, as conflict in the Middle East extended into its sixth month.

Brent crude futures climbed US$2.51, or 2.85 per cent, to US$90.61 a barrel as of 0241 GMT while US West Texas Intermediate (WTI) crude was at US$85.53, up US$2.13, or 2.55 per cent.

US forces struck two launchers on Iran’s Larak island in the Hormuz strait on Sunday, the first known American strikes on the Gulf nation since late July.

In response, Iran attacked two US air bases in Jordan, Iranian media reported on Monday citing Iran’s Revolutionary Guards.

“Looks like we are in another escalation phase. How long that lasts is impossible to determine. Could be days, could be weeks,” IG market analyst Tony Sycamore said.

Technical charts showed that if the conflict escalated and pushed WTI above resistance at US$85.80 to US$85.90 a barrel, it would open the way for further gains, initially to last week’s US$87.69 high followed by July’s US$93.50 high, Sycamore said.

Negotiations to end the conflict are at an impasse while mediators work to reopen the Strait of Hormuz, through which a fifth of the world’s oil flowed before the war began at the end of February.

US Treasury Secretary Scott Bessent told Reuters on Sunday that the US is likely to issue new secondary sanctions weekly on Iran, with the aim of cutting the Islamic republic off entirely from the US dollar-based financial system.

Brent and WTI are set to post small declines in August after falling more than 4 per cent last week, in what was their first weekly decline in three.

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While the path to a deal to reopen the strait is elusive, increases in oil flows through the Hormuz strait kept concern over supply disruption in check, ANZ analysts said in a client note.

The number of visible commodity vessels that sailed through the Strait of Hormuz over the weekend dropped to five a day, shipping data showed on Monday, reflecting caution among companies wary of attacks on ships.

The United Kingdom Maritime Trade Operations reported on Sunday that a tanker was struck by a projectile while sailing inbound through the strait on Saturday.

US President Donald Trump said on Sunday that oil from a recently struck deal with Venezuela will be used to replenish the US Strategic Petroleum Reserve which has dropped near its lowest level in 44 years. REUTERS