Oil Prices Decline Amid Assessment of New U.S. Strikes' Impact on Iran

Oil prices declined on Thursday as investors engaged in profit-taking and assessed the escalating risks from a new wave of U.S. strikes targeting Iranian military facilities. This development has fueled fears of the conflict escalating into a full-scale war that could disrupt vital oil supplies through the Strait of Hormuz. The United States launched strikes on Iranian missile defenses and coastal sites yesterday, Wednesday, following the reimposition of a naval blockade on Iranian ports. In response, Iran threatened to hinder further energy exports from the region, asserting that it is engaged in a "war of survival" against the United States. After rising at the start of trading for the fourth consecutive session, Brent crude futures fell 24 cents, reaching $84.95 per barrel by 04:35 GMT. U.S. West Texas Intermediate (WTI) crude futures also dropped 15 cents, settling at $79.45 per barrel. Brent crude had climbed by about one dollar earlier in the session, with both benchmarks remaining close to their highest levels in a month. In this context, Priyanka Sachdeva, Head of Market Analysis at Phillip Nova, explained that "geopolitical risks continue to provide strong support for oil prices, but after a strong upward trend, traders are adopting a wait-and-see approach." She added that "the focus has shifted from the threat itself to the likelihood of any tangible disruption to oil flows, and how both the United States and Iran will respond in the coming days." Oil prices rose this week due to intensifying supply disruptions in the Strait of Hormuz following the attacks. Approximately one-fifth of global oil and liquefied natural gas (LNG) trade passed through the Strait before the outbreak of hostilities. Shipping data showed that fewer vessels crossed the Strait of Hormuz on Wednesday, the first day after the U.S. reimposed its naval blockade on Iranian ports. According to Kpler platform data, 7 vessels transited the strait compared to 13 on the previous day. Hostilities between Iran and the United States resumed last week, undermining the already fragile ceasefire reached in June after several months of tit-for-tat attacks. For his part, Hiroyuki Kikukawa, an analyst at Nissan Securities Investment, stated that "despite ongoing mediation efforts by neighboring countries and the majority ruling out an all-out war, the price of West Texas Intermediate crude could rise to between $85 and $87, depending on how the conflict evolves." Analysts suggest that Iran may have indicated the possibility of using its Houthi allies in Yemen to close the Bab al-Mandab Strait, located on the Red Sea, which would open a new front against Washington and jeopardize two of the world's most critical energy chokepoints. Reports on Wednesday quoted U.S. officials as saying that the strikes on Iran could pave the way for "more complex" operations against the country, intensifying market anxiety and volatility. In an analysis by Goldman Sachs, it was noted that Brent crude prices could exceed $110 in the fourth quarter if the recovery of Gulf exports continues to falter. However, prices might drop to approximately $60 to $69 by year-end if tensions ease and production recovers faster than expected. ING analysts warned in a note that supply disruptions have resurfaced at a time when U.S. commercial oil inventories have fallen to their lowest levels since 2022, and to their lowest for this period of the year since 2018. They added that "the concern is that renewed oil supply disruptions come at a time when the market has experienced significant inventory drawdowns during the second quarter, making it more vulnerable to volatility and risks."