Oil prices rose about 3% on Tuesday, recovering some of the previous session's losses, as Iranian attacks on the United Arab Emirates revived supply concerns with the Strait of Hormuz remaining largely closed.
Brent futures jumped $3.27, or 3.3%, to $103.48 a barrel at 10:28 GMT, while U.S. West Texas Intermediate (WTI) crude gained $3.14, or 3.4%, to $96.64.
In the previous session, Brent had closed down 2.8%, while US WTI had lost 5.3% after some ships passed through the Strait of Hormuz, a strategic waterway.
The US-Israeli war against Iran is in its third week, and no end is in sight. Iran has renewed its attacks against the United Arab Emirates. Operations at the Shah gas field remained suspended after a drone attack, while a new attack caused a fire at the port of Fujairah, where loading by the national oil company ADNOC was halted.
Fujairah, located in the Gulf of Oman just outside the Strait of Hormuz, is a crucial exit point for oil volumes equivalent to about 1% of global demand.
Moreover, the disruption of maritime traffic in the Strait of Hormuz – a vital access route for approximately 20% of the world's oil and liquefied natural gas trade – has raised concerns about supply shortages, rising energy costs and increasing inflation.
"The risks remain real: it would only take one member of an Iranian militia to fire a missile or plant a mine on a passing oil tanker to reignite the whole situation," said Tony Sycamore, market analyst at IG, in a note.
Several US allies on Monday rejected Donald Trump's call to send warships to escort ships through the strait, drawing criticism from the US president, who accused his Western partners of ingratitude after decades of support.
"For now, oil markets are focused on the duration of the conflict, the disruption of supplies in Hormuz and, in the long term, the damage that this chaos will cause to the Gulf's oil infrastructure," said Priyanka Sachdeva, an analyst at Phillip Nova.
Iran has allowed some Indian ships to transit the Strait of Hormuz, easing some concerns on Monday, although traders still expect serious disruptions, investment bank Cavendish said in a note.
Middle Eastern crude benchmark prices have reached historic highs, making it the most expensive oil in the world, with traders attributing the price surge to reduced supply available for delivery.
The effective closure of the strait has forced the United Arab Emirates, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), to cut their production by more than half, two sources told Reuters.
Oil prices could rise further by the end of March, with technical analysis indicating medium-term resistance for WTI at $124 a barrel, said Kelvin Wong, analyst at OANDA.
In order to curb rising energy costs, the director of the International Energy Agency suggested that member countries could put more oil into circulation, in addition to the 400 million barrels they have already agreed to draw from their strategic reserves.
