Oil hits four-week high as US-Iran conflict escalates

Oil prices rose on Tuesday (Jul 14) to their highest in four weeks, after the US reimposed a naval blockade of Iran and as renewed attacks between Washington and Tehran heightened concerns over energy flows through the Strait of Hormuz.

Brent crude rose to its highest since Jun 12 and WTI to its highest since Jun 16 - before the United States and Iran signed a memorandum of understanding to end the conflict on Jun 17.

Brent crude futures were up US$2.89, or 3.47 per cent, at US$86.19 per barrel at 11.58am GMT, while US West Texas Intermediate crude rose US$1.53, or 1.96 per cent, to US$79.67 a barrel.

"Despite signing the memorandum of understanding and having a deal, this did not last for even a few weeks. So that's the concern the market is trying to price right now," said ANZ analyst Soni Kumari.

"What we think is that the peak of the escalation is behind us, but there are upside risks to oil prices if these disruptions continue and that will keep prices in the US$85 to US$90 range."

Hostilities between the United States and Iran intensified this week, as US President Donald Trump reinstated a blockade of Iranian shipping and proposed charging a 20 per cent fee to guard the Strait of Hormuz.

The waterway is a critical artery for global energy trade, carrying about a fifth of the world's daily oil and liquefied natural gas supplies before the conflict began.

Amid the strikes, one Indian crew member was killed and eight others were wounded when two Emirati oil tankers were struck by Iranian cruise missiles in the Strait of Hormuz, the United Arab Emirates Ministry of Defence said.

Shipping data on Monday also showed the number of tankers transiting the Strait of Hormuz fell in the past day to the lowest level in two months.

Citi said in a note that the possibility of the Iranian regime walking away from the memorandum of understating until after the US mid-term elections has also risen, a scenario which would most likely see higher for longer oil prices.

However, Iran's oil exports are continuing as usual despite the cancellation last week of a 60-day waiver of US oil sanctions, oil minister Mohsen Paknejad said on his official Telegram account.

Elsewhere, Yemen's Houthi movement fired missiles at Saudi Arabia after accusing the kingdom of bombing an airport under its control on Monday.

"If the Houthis extend their attacks to Saudi's crude products in the Red Sea, it could put (further) uncertainties on crude flows from the region," Simon Wong, a portfolio manager at Gabelli Funds, said in a note.

Meanwhile, Ukraine's military said on Tuesday that it struck two Russian oil refineries in the Bashkortostan and Krasnodar regions overnight.