Oil prices extended gains on Tuesday as risks of a prolonged conflict in the Middle East grew after Iran threatened to retaliate against any new U.S. attacks on its assets, heightening worries over supply disruption.
Brent crude futures climbed 34 cents, or 0.35%, to $97.34 a barrel by 0000 GMT. U.S. West Texas Intermediate crude was at $92.63 a barrel, up $1.15, or 1.26%.
Brent rose to its highest level since July 24 in the previous session, as traders continued to build a risk premium into prices amid heightened tensions around the Strait of Hormuz, a key artery for global crude shipments.
Iran warned on Monday that energy infrastructure across the Gulf, including U.S. oil and gas interests, was vulnerable. This follows tit-for-tat strikes during the weekend, with no sign of progress towards a diplomatic breakthrough.
On Saturday, U.S. forces struck three Iranian oil tankers, including one near Kharg Island, Iran's main oil export hub, according to U.S. Central Command. The attacks followed strikes by Iran's Revolutionary Guards on U.S. warships operating in the region.
"The recent escalation of the Middle East conflict has increased the likelihood of a prolonged standoff, punctuated by calibrated military action by the U.S. and Iran. This could see Persian Gulf supply remain constrained through the rest of 2026," Daniel Hynes, an analyst at ANZ, said in a note.
"We don't expect a full return to pre-war throughput until late Q1 or early Q2 2027."
MARKET OUTLOOK
Meanwhile, Goldman Sachs raised its Brent and WTI price forecasts by $5 to $85 and $80, respectively, for December 2026 and to $80 and $75, respectively, for 2027, reflecting its new assumption that Middle East shipping disruptions continue into 2027.
In financial services platform Marex's September commodity outlook, analyst Ed Meir said that as long as the war continues, which it thinks it will given "the multitude of issues that have yet to be addressed", crude oil prices will likely remain elevated through year-end.
