Oil prices edged higher in a seesaw session, as traders digested positive U.S. economic data while fretting over supply disruptions amid the intensifying conflict in the Middle East.
At 13:02 ET (18:02 GMT), Brent Oil Futures expiring in May rose 0.4% to $81.68 per barrel and Crude Oil WTI Futures added 0.7% to $75.07 per barrel.
Both benchmarks closed nearly 5% higher on Tuesday, adding to 7% gains at the start of the week, with the Brent contract reaching its highest level since July 2024.
Traders weigh supply risks
The Middle East conflict, started over the weekend when U.S. and Israeli forces launched coordinated strikes on the Iranian military that killed Supreme Leader Ayatollah Ali Khamenei, has continued Wednesday, with U.S. Admiral Brad Cooper, who leads U.S. forces in the Middle East, stating that more than 2,000 Iranian targets had been hit.
Iran has responded by firing missiles and drones at neighboring Arab states that host U.S. bases and issuing warnings to global shipping operators, targeting oil tankers transiting the Strait of Hormuz, the narrow waterway that handles roughly a fifth of global oil shipments.
The threat to Hormuz, a critical artery for crude exports from major producers including Saudi Arabia, Iraq, and the United Arab Emirates, has injected a significant geopolitical risk premium into oil prices.
“Iranian strikes have now directly targeted energy infrastructure across the Gulf region, but large-scale attacks have so far been avoided. The effective closure of the Strait of Hormuz remains a key concern; our commodities team has estimated that an average of around 20 days remain before major upstream production shut-ins could begin. Estimates vary widely by country — with initial cuts to Iraqi production already taking place,” JPMorgan analysts led by Alex Gallin said in a note.
Iraq has more than halved its oil production as the country runs out of storage, Iraqi oil officials said, while tankers avoid the Strait.
Oil output at the country’s largest oil field, Rumaila, was cut by 700,000 barrels a day, while the West Qurna 2 field saw its output fall by around 450,000 barrels a day, Iraqi oil officials said.
Iraq also cut production at the Maysan oil field by around 350,000 barrels a day, they said. Additionally, Iraq has suspended crude production from the northern Kirkuk region as a precaution, they added.
Market participants looking for cues on how long the conflict could last received an update from Secretary of War Pete Hegseth, who told reporters on Wednesday that Washington could carry out its assault on Iran for as long as it wants to. He also touted the success of joint American and Israeli attacks, including the sinking of an Iranian warship in the Indian Ocean.
Economic data lifts spirits
One of the key concerns for traders is the inflationary effect that a spike in oil prices can have, which in turn means central banks like the Federal Reserve would not be able to lower interest rates.
But some solid labor market data on Wednesday provided a lift to the mood. Private employment grew by 63k in February, according to ADP, higher than the expected figure of 50k and the best reading in roughly a year.
The focus now turns to the more comprehensive nonfarm payrolls report, due on Friday.
Goldman lifts 2026 crude forecasts
Goldman Sachs on Wednesday raised its second-quarter 2026 average price forecast for Brent crude oil by $10 to $76 per barrel and for WTI by $9 to $71.
These forecasts assume that low oil flows via the Strait of Hormuz will lead to large declines in OECD inventories and Middle East oil production in March, according to the bank’s note.
Goldman said its forecasts remain heavily tilted to the upside, with risks including a longer‑than‑expected disruption to exports through the Strait of Hormuz and potential damage at oil production facilities.
“If Hormuz volumes were to remain flat for 5 additional weeks, Brent prices would likely reach $100, a level associated with larger demand destruction to prevent inventories from falling to critically low levels,” it said in a note.
According to George Smith, portfolio strategist at LPL Financial, energy markets generally see a temporary risk premium during geopolitical crises.
“Historically, and as markets exhibited this week, oil prices spike on perceived supply risk, energy equities often outperform, but price pressures fade once physical supply and distribution prove resilient,” Smith said.
Trump to facilitate Strait tanker traffic
Traders are also noting comments from President Donald Trump, who said the U.S. navy would provide escorts for commercial vessels if necessary and pledged government support to guarantee safe passage.
“The promise of such guarantees comes as insurers are cancelling war risk coverage for vessels moving through the Strait of Hormuz,” ING analysts said.
“This is welcome news, but clearly it won’t happen overnight,” they added.
While military escalation has underpinned prices, signs of international efforts to secure shipping lanes could temper further upside in the near term.
Source : ( investing.com )