Middle East Tensions Fuel Four-Week High Crude Oil Prices

Crude oil prices surged to a four-week high on Wednesday as tensions in the Middle East continued to escalate. The September WTI crude oil (CLU26) price rose by 1.05% to close at $87.39 per barrel, while gasoline prices fell by 1.41% due to an unexpected rise in US gasoline supplies.

The sharp decline in the dollar index ($DXY) to a two-and-a-half-month low was bullish for energy prices. The lack of a clear path to resolving the conflict between Iran and the UAE, along with the continued closure of the Strait of Hormuz, is keeping upward pressure on oil prices.

The US Energy Secretary Chris Wright stated that the US is playing the long game with Iran, implying no plans for de-escalation of the conflict. This has limited prospects for a swift reopening of the Strait of Hormuz and increased crude supplies from the Middle East.

In addition to the ongoing conflict in the Middle East, Israeli attacks on Iran-backed Hezbollah in Lebanon have dampened prospects for ending hostilities in the region. The US-Iran military attacks have also led to an increase in production disruptions, which is expected to worsen the global oil supply deficit.