Oil Price Today (September 2): Crude oil nears $97 as war tensions escalate. Will it hit $100 again?

Oil prices climbed over 2% on Wednesday, extending the sharp gains from the previous session, as fears of supply disruptions grew after the US and Iran exchanged strikes overnight. The escalation has reduced hopes of a quick easing of tensions in the Middle East.

The United States said it carried out a series of airstrikes against targets in Iran overnight, drawing a response from Tehran in what was described as the most serious escalation in the conflict between the two countries in weeks.

Also read: Trump says US gave Iran many chances, dismisses value of any deal: Report

Crude oil price on September 2

Brent crude futures gained 99 cents, or 2%, to $96.54 a barrel, while US West Texas Intermediate crude futures rose $1.55 , or 1.52%, to $92. Both contracts had jumped more than $4 on Tuesday, with Brent posting its biggest gain since July 24 and WTI its largest since July 23.
The US Central Command said the strikes came after recent attempted attacks by Iran’s Islamic Revolutionary Guard Corps (IRGC) on commercial shipping in the Strait of Hormuz and on American service members deployed in the region.

Hormuz opening in jeopardy

The IRGC said the US attacks would further restrict traffic through the Strait of Hormuz, a key waterway that carried about one-fifth of the world’s consumed oil before the conflict and which Iran has effectively closed to commercial shipping.
The IRGC also said it had targeted a US military base in Jordan with ballistic missiles, claiming that a large number of US forces were killed. Iranian state media separately reported a large-scale drone attack on a US base in Bahrain in response to the American strikes.The latest exchange came after a weekend flare-up in hostilities, the first since July, and followed attacks on two tankers leaving the Strait of Hormuz on Monday. The attacks added to disruptions in oil supplies and prompted traders to look for alternative crude shipments.

Read more: Iran warns US strikes will ‘tighten the lock’ on Strait of Hormuz

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. Kuwait, meanwhile, said its armed forces were responding to hostile drone activity.

Where are prices headed?

The length of the disruption will be a key factor for crude markets. JPMorgan estimates that each additional month of disruption could lift Brent prices by around $7 to $8 a barrel. If the disruption continues for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.

Goldman Sachs has also warned that Brent could rise to $120 a barrel if shipping disruptions through the Strait of Hormuz, the world’s most important oil transit route, continue. Its base case, however, assumes that tensions in the Middle East will eventually ease.

The bank expects Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year, while noting that risks remain skewed to the upside if disruptions in the Strait of Hormuz and the Red Sea persist for longer than expected.

Ponmudi R, CEO of Enrich Money, said crude prices would remain closely linked to developments around the Strait of Hormuz. He said a sustained recovery in shipping flows could further unwind the geopolitical premium in crude and provide relief to emerging-market equities, while renewed disruptions could quickly reverse that trend.

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