Oil prices surged higher Wednesday, adding to two days of sharp gains, as the intensifying conflict between the U.S., Israel, and Iran kept supply disruption risks at the forefront of investor concerns.

At 03:40 ET (08:40 GMT), Brent Oil Futures expiring in May rose 3.5% to $84.25 per barrel and Crude Oil WTI Futures climbed 3.4% to $77.10 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 their 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 neighbouring 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.

“The disruption to oil flows through the Strait is starting to affect oil flows further upstream,” ING analysts said in a note.

They also noted reports saying Iraq has started shutting in production at the Rumaila field, the country’s largest, and at West Qurna 2, with 1.2 million b/d going offline.

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.

That said, “the supply disruption tailwind could quickly turn into a demand destruction headwind. A prolonged conflict and sustained high prices may fuel oil-driven inflation and amplify economic risks stemming from renewed tariff uncertainty. That combination could weigh on consumption and ultimately pressure oil prices,” said Nikos Tzabouras, Senior Market Analyst at Tradu.com.

Trump to facilitate Strait tanker traffic
Traders are also noting comments from U.S. 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 wrote.

“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