Oil jumps 7% on escalating Middle East airstrikes

By Nicole Jao

NEW YORK, July 29 (Reuters) - Oil prices climbed 7% on Wednesday as airstrikes resumed in the Middle East, adding to worries about dwindling supply as U.S. government data showed crude inventories fell to a multi-year low.

Brent futures were up $6.16, or 7.33%, at $90.25 a barrel by 11:36 a.m. ET (1536 GMT). U.S. West Texas Intermediate crude gained $5.40, or 6.81%, to $84.65 a barrel.

"Renewed military strikes in the Middle East and Iranian officials reiterating that they want to control shipping activity through the Strait of Hormuz amid depressed oil flows through the strait are lifting oil prices again," UBS analyst Giovanni Staunovo said.

The U.S. and Saudi Arabia launched strikes on Iran-backed groups in Iraq on Wednesday, blaming them for drone attacks on Saudi oil facilities.

The strikes came hours after the U.S. military said it had averted a surprise Iranian attack on U.S. troops in the region. Iran said it had fired on ships in the Strait of Hormuz and at U.S. bases in Jordan.

Prices surged even higher after President Donald Trump, in an interview with Fox News, promised further strikes against Iran.

STRAIT OF HORMUZ IN FOCUS

Tehran has ruled out Oman's proposal for regional joint management of the strait, a senior Iranian official told Reuters on Wednesday.

"We believe Brent oil prices will continue to whipsaw in the $80-$100 per barrel range in the near term as the conflict ebbs and flows in the Middle East," said Suvro Sarkar, head of energy research at DBS Bank. 

Only a few commodity ships have transited the strait this week, even as five transited on Wednesday through the Bab el-Mandeb Strait, an alternative route for Saudi oil shipments to Asia, and 39 on Tuesday. That was the highest number since July 19, just before Yemen's Iran-backed Houthi militants announced a maritime blockade of Saudi Arabia.

The Houthis are also considering imposing fees on commercial ships sailing through the southern Red Sea, regional sources with knowledge of the matter told Reuters. China has held direct talks with the group to enable its tankers to sail through the region without being attacked, six sources with knowledge of the matter said.

"From what I can see, their success in stopping flows through the Bab el-Mandeb is nowhere near as effective as in the Strait of Hormuz, though it appears there are more ships entering than exiting," said Scott Shelton, energy specialist at TP ICAP.

U.S. crude oil inventories fell last week as energy exports remained robust and domestic demand firm, analysts said. Crude stockpiles dropped by 7.2 million barrels to 404.5 million barrels last week, the lowest level since 2018, the Energy Information Administration said on Wednesday. Analysts had expected a 1.3-million-barrel draw. [EIA/S]

Further supporting prices, OPEC+ is likely to halt oil output increases for three months starting in October, sources told Reuters, after the producer group completes the scheduled return of barrels following voluntary cuts.

(Reporting by Nicole Jao and Laila Kearney in New York, Stephanie Kelly in London and Emily Chow in Singapore; Additional reporting by Arathy Somasekhar in Houston; Editing by Shri Navaratnam, Clarence Fernandez, Emelia Sithole-Matarise, Rod Nickel)