Oil prices rose on Thursday, extending gains that took Brent over $100 a barrel in the previous session, as traders braced for deeper supply disruptions after Iran and the United States launched their largest attacks on shipping since their six-month-old conflict began.
Brent crude futures LCOc1 were up by 40 cents, or 0.4%, at $101.61 a barrel by 0814 GMT. U.S. West Texas Intermediate crude CLc1 rose by 49 cents, or 0.51%, to $96.54.
Brent prices have surged nearly 30% from lows touched in early August as a permanent agreement between the U.S. and Iran to cease attacks never materialised and fighting resumed later in the month.
China demand seen as key to the rally
While fears of prolonged and more severe supply disruptions in the Gulf have lifted Brent above $100, analysts say the durability of the rally will hinge on China.
In the physical crude oil market, the dated Brent oil benchmark, against which roughly two-thirds of supply is priced, has been above $100 since September 3, according to LSEG data.
China, the world's largest crude importer, has stepped up purchases in recent weeks after months of subdued demand, boosting physical crude markets, ING analysts said in a note.
If Chinese buying continues to recover, it could amplify the impact of any supply disruptions and drive prices higher, but a pullback in imports could temper the market's gains, ING said.
"For months the bearish case rested on soft Chinese demand as a reliable dampener. That dampener was never structural. It was a drawdown, a buffer being spent, and buffers empty," said David Jorbenaze, global oil market lead at commodities information provider ICIS.
Tanker attacks keep Gulf supply outlook tight
"The recent run-up in prices lays bare the market’s approach: this conflict will last longer than anticipated even a month ago, let alone at the beginning of the summer. If oil supply and exports are diminished, the oil balance remains tight and prices remain elevated," PVM analyst John Evans said.
U.S. President Donald Trump warned that the U.S. may hit Iran's Pickaxe Mountain, urging Tehran to be cautious, and said that the war will likely last beyond the November midterm elections.
Iran said it had attacked 10 ships near the Strait of Hormuz on Wednesday, after the U.S. sank five Iranian oil tankers. Iran's Islamic Revolutionary Guard Corps said it would escalate its response to any further attacks.
Oil flows through the Strait of Hormuz, the waterway that before the war carried roughly a fifth of global oil and gas supplies, remain far below pre-war levels, while pressure is also mounting in the Red Sea as Iran-aligned Houthi militants have stepped up strikes against Saudi Arabia.
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