Oil prices rose more than 2 per cent on Wednesday and moved closer to the $100 a barrel mark following fresh attacks in the Middle East, raising supply fears, as a potential deal between the US and Iran remains elusive.
Brent, the benchmark for two thirds of the world's oil, was up 2.48 per cent to $98.38 a barrel at 12.55pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was trading 2.60 per cent higher at $96.20 a barrel.
Iranian drones struck Kuwait International Airport's passenger terminal on Wednesday, causing significant damage and injuries. It was one of the most serious Iranian attacks on civilian targets in the Gulf since the conflict began on February 28. The strike on the airport came after a night of attacks on Kuwait, Bahrain and Gulf shipping lanes.
Tehran said it was retaliating after an Iranian oil tanker near the Strait of Hormuz was struck by a US projectile, damaging its engine room.
The exchange of fire marks a new strain on already fragile ceasefire talks between Tehran and Washington, which have stalled in recent weeks amid disputes over Iran’s nuclear programme and sanctions relief.
“Oil prices saw gains on Tuesday as doubt about the prospect for a US-Iran deal persisted,” said Jeanne Walters, senior economist at Emirates NBD.
Crude prices have remained volatile and posted their steepest weekly decline last week since early April, due to hopes that the US and Iran may finally strike a peace deal.
"Markets remain focused on the future of energy flows through the Strait of Hormuz, with delays in reaching a deal raising the likelihood that global inventories will need to be drawn down further before Gulf exports fully recover," said Soojin Kim, research analyst at MUFG.
Goldman Sachs expects two-sided risks to oil prices as a slump in demand competes with supply losses from the Middle East. There could be significant upside price risks from more persistent supply losses but also meaningful price downsides from weaker demand, the investment bank said last week.
