Oil rises for second day after renewed US-Iran strikes

Oil prices are rising for a second straight trading session after a new exchange of strikes between the US and Iran. The resumption of hostilities near the Strait of Hormuz has brought back to the market fears that disruptions to energy supplies through one of the world's key maritime routes could be prolonged.

During trading on September 1, Brent futures were moving towards $92 per barrel, while US WTI was trading near $87. According to Trading Economics, Brent was at about $91.4, adding about 1%, and US oil at about $86.9 with a gain of about 1.3%.

The rise continued the previous session's rally. On Monday, WTI rose 2.8% - its biggest one-day gain in about three weeks. Brent ended trading near $90.49 per barrel after the first direct exchange of strikes between Washington and Tehran in more than a month.

Market reassesses risks for Strait of Hormuz

The new escalation began after US military strikes on two Iranian missile installations on Larak Island in the Strait of Hormuz. The US Central Command said that Islamic Revolutionary Guard Corps forces were preparing to use missiles and sea mines in the strategic waterway.

In response, Iran launched missile attacks on sites in Jordan and claimed drone strikes on American military infrastructure in the United Arab Emirates. This was the first significant exchange of strikes between the sides in about a month.

The very risk to shipping through the Strait of Hormuz remains the main geopolitical factor for the oil market. A significant portion of oil supplies from Persian Gulf countries passes through this route, so any prolonged disruption to tanker traffic can quickly intensify physical market tightness.

At the same time, supplies through the strait have not completely stopped. Producers and traders are adapting to heightened risks, including using ship-to-ship transfers of oil outside the most dangerous zone. This is estimated to have restored exports to about 15-16 million barrels per day, although volumes still remain below pre-conflict levels.

August ended with slight rise for oil

Despite significant fluctuations during the month, oil ended August with a slight gain. Prices constantly reacted to conflicting signals about a possible end to the conflict - from attempts to resume negotiations to new US sanctions and military strikes.

Hopes for a quick settlement over the summer weakened after the failure of a temporary de-escalation. Financial Times notes that Brent is now about 13% more expensive than at the beginning of August and about a quarter above the level before the start of the current conflict at the end of February.

For the market in the near term, the key remains not the fact of individual strikes, but whether the new escalation will turn into a prolonged deterioration in shipping security in the Strait of Hormuz. If oil flows from the region shrink again, the geopolitical premium in prices could persist longer.

Based on: Bloomberg, Financial Times, Trading Economics