Oil on track for biggest monthly surge since March amid U.S.-Iran conflict

Oil prices edged higher in Asian trade on Friday, remaining on track for a monthly gain of more than 20% as renewed military exchanges between the United States and Iran and an expanding regional conflict stoked fears of prolonged supply disruptions across the Middle East.investing+1

Brent crude futures rose 0.7% to $89.64 per barrel in early Friday trading, while West Texas Intermediate crude futures gained 0.6% to $84.06 per barrel. Both benchmarks surged nearly 21% in July, their largest monthly gain since March, though they remained set for a nearly 7% weekly loss after renewed hopes for peace talks weighed on prices earlier in the week.investing

Escalating Strikes and Regional Spillover

The latest escalation came after fresh U.S. strikes on Iranian military targets prompted retaliatory Iranian ballistic missile attacks on U.S. positions in the Middle East. Brent futures surged nearly 8% on Wednesday alone following the exchange of fire. President Donald Trump told Fox News ↘ 0.74% on Wednesday that Iran would be "hit very hard" following Tehran's missile attack on U.S. forces.investing+1

The conflict has spread beyond the Gulf. An unidentified drone struck gas vessels at Egypt's Mediterranean port of Damietta near the Suez Canal on Wednesday, triggering fires and raising concerns over another critical energy transit route. Egypt's Prime Minister Mostafa Madbouly said Thursday the country had secured alternative energy sources.investing+1

In Yemen, Iran-aligned Houthi militants declared a naval blockade on Saudi Arabia last week and intensified attacks on commercial shipping around the Red Sea and Bab el-Mandeb Strait. Saudi Arabia held talks with representatives from 43 countries on forming a maritime coalition to safeguard Red Sea shipping, with 14 states issuing a joint statement of support on Thursday.thestar+2

Inventories and Supply Pressure

U.S. Energy Information Administration data released Wednesday showed commercial crude stockpiles fell by 7.2 million barrels to 404.5 million barrels in the week ended July 24 — the lowest level since 2018 and far exceeding the expected decline of 1.3 million barrels. The sharp draw reinforced concerns that an expanding conflict could further tighten global supplies.sunsirs+2

Attacks on refineries across the Middle East and Russia have also tightened supplies of refined products. A Ukrainian drone attack caused a fire at Lukoil's PJSC LUKOIL Perm refinery on Thursday, forcing the shutdown of a crude distillation unit, according to Reuters. Tankers planned for loading at the Caspian Pipeline Consortium terminal began heading away from the Black Sea after a vessel was hit during loading the same day.thestar

Diplomatic Signals Cap Gains

Prices pulled back on Thursday as traders weighed diplomatic signals. Iran and Oman continued talks on management of the Strait of Hormuz, which normally handles about a fifth of global oil and liquefied natural gas flows. "The fact that Oman is in talks with Iran could suggest that progress is being made on re-opening the Strait of Hormuz," said Hamad Hussain, senior climate and commodities economist at Capital Economics.thestar

Still, analysts cautioned the risk premium is unlikely to fade soon. "Until safe passage through the Strait of Hormuz is no longer a gamble, the risk premium in oil is not going anywhere — hope for diplomacy is welcome, but the market is pricing in the reality of ongoing strikes," said Tim Waterer, chief market analyst at KCM Trade.thestar