Oil prices extended their gains on Tuesday amid heightened concerns regarding a prolonged conflict in the Middle East. This escalation follows Iran’s threats of retaliation against any further US attacks on its assets, which raises apprehensions about potential disruptions to crude supplies. Iran stated on Monday that energy infrastructure throughout the Gulf, encompassing US oil and gas interests, may be at risk. The warning followed reciprocal strikes over the weekend, with no signs of a diplomatic resolution emerging. Brent crude futures increased by 34 cents, representing a 0.35% rise, reaching $97.34 per barrel. Meanwhile, US West Texas Intermediate crude saw an uptick of $1.15, equivalent to a 1.26% gain, bringing it to $92.63 per barrel. Brent reached its peak since July 24 in the last session as traders maintained a risk premium in response to escalating tensions surrounding the Strait of Hormuz, a crucial passage for global oil transport.

On Saturday, US forces targeted three Iranian oil tankers, one of which was located near Kharg Island, the principal oil export hub of Iran, as reported by US Central Command. The attacks ensued subsequent to operations conducted by Iran’s Revolutionary Guards targeting US warships active in the region. The duration of the disruption will be pivotal for oil prices. JPMorgan’s analysis suggests that each additional month of disruption may contribute approximately $7 to $8 per barrel increase in Brent prices. If the disruption persists for three months, the bank anticipates average monthly Brent prices to approximate $114 per barrel. Goldman Sachs has cautioned that Brent may escalate to $120 a barrel should shipping disruptions through the Strait of Hormuz, the preeminent oil transit route globally, continue. Its base case, however, posits that tensions in the Middle East will ultimately subside.

The bank anticipates that Brent will average $80 a barrel in the fourth quarter and $75 a barrel in the following year, while cautioning that the risks are skewed to the upside should disruptions in the Strait of Hormuz and the Red Sea persist longer than anticipated. Citi has increased its average Brent crude price forecast for the third quarter to $86 a barrel from $80, attributing this adjustment to a longer-than-anticipated timeline for the reopening of the Strait of Hormuz. ANZ analysts have raised their short-term Brent forecast to $95 a barrel, cautioning that prices may increase further should the conflict in the Middle East escalate. It was indicated that a prolonged standoff characterised by calibrated military action between the US and Iran seems to be the most probable scenario, which could potentially postpone the full return of supply in the Middle East.

The front-month Brent contract is currently priced at a premium of approximately $20 compared to the October 2027 contract, which represents about one-fifth of its value. This indicates that the market is assigning a significant premium to barrels that are available in the present compared to those scheduled for next year. The bias in Brent remains positive, as noted by Anindya Bannerjee. Bannerjee stated that $90 has established itself as a robust support level for Brent, whereas $102 serves as the significant resistance threshold. A break above $102 could trigger significant upside momentum, with prices potentially moving toward $115-$116. Until then, Brent is anticipated to exhibit a favourable trend while remaining beneath that upper limit.