Oil Extends Rally, WTI Tops $86 as U.S.-Iran Clashes Resume

Oil prices extended their gains as renewed military attacks between the U.S. and Iran stoked concern that disruptions to crude shipments through the Strait of Hormuz could last longer.

Bloomberg reported on August 31 that West Texas Intermediate traded above $86 a barrel after jumping 2.8% a day earlier, its biggest one-day gain in three weeks. Brent crude ended the previous session near $90 a barrel.

The latest advance came after military clashes between Washington and Tehran resumed. U.S. forces struck an Iranian island in the Strait of Hormuz, and Iran retaliated by attacking the United Arab Emirates and Jordan. It was the first direct exchange of attacks between the two sides in about a month.

Uncertainty surrounding the Strait of Hormuz also pushed prices higher. Energy shipments through the waterway have been disrupted since the outbreak of the war, and a quick return to normal shipping operations appears unlikely.

Bart Melek, TD Securities' global head of commodity strategy, said investors reduced net long crude positions last week as uncertainty lingered over the next phase of the conflict with Iran. He added that oil prices would likely climb further because there was no sign that normal transit through the Strait of Hormuz would resume in the near term.

Global oil prices were highly volatile last month as talks to end the war between the U.S. and Iran alternated between progress and setbacks. The U.S. decision to tighten sanctions to increase pressure on Iran's economy also affected the market. Even so, crude posted a modest gain for August.

Crude exports through the Strait of Hormuz have not stopped completely. Some tankers are still passing through the waterway with their Automatic Identification System, or AIS, turned off to avoid attacks. Persian Gulf producers including the UAE, Saudi Arabia, Kuwait and Iraq are also continuing to export some crude.