Oil rises as US-Iran tension escalates after Iraq strikes, missile attack

Oil ​prices rose by about $3 a barrel on Wednesday after joint strikes in Iraq by the ‌United States and Saudi Arabia, and the interception of Iran's ballistic missiles aimed at US forces in the Middle East, while US crude inventories shrank.

Brent futures increased by $3.15, or 3.8 percent, to $87.24 a barrel by 0520 GMT, while US West Texas Intermediate (WTI) crude rose $2.73, ​or 3.4 percent, to $81.99 a barrel.

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"Renewed strength comes after the US said it intercepted a surprise attack on ​US troops," ING analysts said in a note, adding that the latest developments dampen expectations ⁠for a swift de-escalation in the Gulf.

The United States and Saudi Arabia launched strikes on Iran-backed groups in Iraq ​on Wednesday, blaming them for drone attacks on Saudi oil facilities, prompting Iran to warn that blaming it for ​such attacks was a "major miscalculation".

The strikes came hours after the US military said it averted a surprise Iranian attack on US troops in the region.

Just five commodity ships passed through the Strait of Hormuz on Tuesday, where tanker traffic remains low.

Oman presented Iran with a plan ​backed by Gulf states to manage the waterway, including collecting voluntary fees for its use, a Gulf source ​and a Western diplomat told Reuters on Tuesday.

But Tehran has ruled out Oman's proposal for regional joint management of the waterway, which ‌carried a ⁠fifth of global crude oil and natural gas shipments before the war, ruling out chances of success, a senior Iranian official said on Wednesday.

"We believe Brent oil prices will continue to whipsaw in the $80-$100 per barrel range in the near term as the conflict ebbs and flows in the Middle East," said Suvro Sarkar, head of ​energy research at DBS Bank.

The ​situation has escalated after ⁠US President Donald Trump signalled a return to diplomacy in the week, he added.

"This series of stop-start negotiations means a complete removal of the Strait of Hormuz blockade ​is not achieved, and oil prices could see higher floor of around $80 per barrel ​even under ⁠a de-escalation scenario."

US crude inventories fell by about 3.3 million barrels in the week ended July 24, market sources said on Tuesday, citing data from the American Petroleum Institute.

Official inventory data from the Energy Information Administration is due later on Wednesday.

Further ⁠supporting ​prices, OPEC+ is likely to halt oil output increases for three months starting ​in October, sources told Reuters, after the producer group completes the scheduled return of barrels following voluntary cuts.