Oil rises on supply concerns as Iran conflict widens

By Enes Tunagur

LONDON, March 5 (Reuters) – Oil prices rose on Thursday, extending a rally as the escalating U.S.-Israeli war with Iran disrupted supplies and shipping, prompting some major producers to cut output and others to take measures to ensure supply security.

Brent crude was up $1.72, or 2.1%, at $83.12 per barrel by 1106 GMT, a fifth session of gains. U.S. West Texas Intermediate crude rose $1.95, or 2.6%, to $76.61. 

Oil markets are tightening, with the Chinese government telling the largest oil refiners to suspend exports of diesel and gasoline, said PVM analyst John Evans.

Two oil refineries in China and India shut their crude units following the disruption to supplies, as both countries rely on Middle East crude imports.

As a result of a lower supply outlook in fuel markets, European diesel futures reached their highest level since October 2022 at $1,130.

Crude oil markets remained on edge as they face ongoing risks to supply following the attacks in the Middle East, with concerns centred on trade flows through the Strait of Hormuz, ANZ analysts said in a note on Thursday. 

CONTINUED ATTACKS ON OIL TANKERS

Attacks on oil tankers continued on Thursday, as the Bahamas-flagged crude oil tanker Sonangol Namibe reported its hull was breached after a blast near Iraq’s Khor al Zubair port.

Around 300 oil tankers remained inside the Strait as vessel traffic in and out of the chokepoint nearly halted following the outbreak of war, according to ship tracking data from Vortexa and Kpler that excludes some of the smallest tankers.  

Iran launched a wave of missiles at Israel early on Thursday, sending millions of residents into bomb shelters as the conflict entered its sixth day, and just hours after moves to halt the U.S. attacks were blocked in Washington. 

On Wednesday, a U.S. submarine sank an Iranian warship off Sri Lanka, killing at least 80 people, and NATO air defences destroyed an Iranian ballistic missile fired towards Turkey.

Crude oil supplies from Iraq and Kuwait could start shutting in within days if the Strait of Hormuz remains closed, potentially cutting 3.3 million barrels per day (bpd) by day eight of the conflict, J.P. Morgan analysts said in a note.

Iraq, the second-largest crude producer in the Organization of the Petroleum Exporting Countries, has cut output by nearly 1.5 million barrels a day for lack of storage and an export route, officials told Reuters. 

Qatar, the biggest liquefied natural gas producer in the Gulf, declared force majeure on gas exports on Wednesday, with sources saying a return to normal production volumes may take at least a month.

(Reporting by Katya Golubkova in Tokyo and Siyi Liu in Singapore; Editing by Jan Harvey and Bernadette Baum)