Oil prices rise on fears of Middle East conflict escalation

Investing.com--Crude prices rose Thursday on heightened speculation over whether the U.S. will become involved in the Israel-Iran conflict, increasing the possibility of supplies from oil-rich region being disrupted. 

At 05:00 ET (09:00 GMT), Brent oil futures climbed 0.3% to $76.94 a barrel and West Texas Intermediate crude futures rose 0.5% to $73.83 a barrel.

Both contracts are on course for double-digit gains this week on the heightened geopolitical tensions.

U.S. preparing for potential Iran strike - Bloomberg 

U.S. officials are preparing for a potential strike against Iran in the coming days, with the weekend being considered as a potential window for an attack, Bloomberg reported on Thursday.

But the situation over U.S. involvement still remained largely unclear, the report said. 

President Donald Trump presented a hardline stance against Iran this week, but stopped short of stating whether the U.S. will become directly involved in the conflict. Trump called for Tehran’s immediate surrender, but was still seen touting the possibility of nuclear talks with the Islamic republic. 

A direct U.S. strike against Iran could mark a major escalation in the conflict, with Iran having warned against such a possibility. 

Iran and Israel continued to launch attacks against each other on Thursday, marking the seventh day of their renewed conflict. 

Oil prices had risen sharply since Friday on concerns of increased supply disruptions from the conflict, and were trading close to their highest levels since late-January.

"The biggest fear for the oil market is the shutdown of the Strait of Hormuz," said analysts at ING, in a note. "This could impact oil flows from the Persian Gulf. Almost a third of global seaborne oil trade moves through this chokepoint. A significant disruption to these flows would be enough to push prices to $120/bbl."

Shell "very careful" of Middle East shipping - CEO 

Shell CEO Wael Sawan said on Thursday the oil and gas major was being "very careful" with its shipping through the Middle East given the escalating conflict between Israel and Iran.

"The escalation in tensions over the last few days, in essence, has added to what has already been significant uncertainty in the region," he told an industry conference in Tokyo.

"We’re being very careful with, for example, our shipping in the region, just to make sure that we do not take any unnecessary risks."

"The Strait of Hormuz is, at the end of the day, the artery through which the world’s energy flows, and if that artery is blocked, for whatever reason, it’ll have a huge impact on global trade," he said.

Fed keeps rates unchanged

Crude prices also received a boost this week from the release of data showing a bumper draw in U.S. oil inventories, suggesting demand remains strong in the world’s largest economy. 

U.S. fuel demand is also expected to pick up in the coming months, amid increased travel during the summer season.

That said, the Federal Reserve kept interest rates unchanged and downplayed the potential for more interest rate cuts, amid heightened uncertainty over the U.S. economy and inflation.

Chair Jerome Powell said that inflation was likely to increase from Trump’s planned trade tariffs, and that any interest rate cuts will be largely data-dependent. 

Powell’s comments come after data earlier this week showed U.S. retail sales and industrial production both missed expectations in May, outlining some economic cracks in the world’s biggest fuel consumer.

Lower interest rates would stimulate the economy, and as a result demand for oil.