Oil prices jump 7% as US-Iran truce buckles under fresh hostilities

By Shariq Khan and Anushree Mukherjee

July 8 (Reuters) - Crude oil prices soared about 7% on Wednesday after U.S. President Donald Trump threatened fresh strikes against Iran, which could lead Iran to close the Strait of Hormuz to ship traffic again.

Before the U.S. war with Iran about 20% of global oil supplies passed through the waterway.

Brent futures rose $4.91, or 6.6%, to $79.07 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $4.27, or 6.1%, to $74.71.

That would be the biggest daily percentage gains for both crude benchmarks since April and puts Brent on track for its highest close since June 19 and WTI on track for its highest close since June 18.

U.S. President Donald Trump said an interim agreement to end the war with Iran was "over" and that the United States was likely to launch new strikes on Wednesday night following Iranian attacks on U.S. bases in the Gulf.

In a flare-up of hostilities that pushed up oil prices, Iran said on Wednesday it had targeted U.S. military sites in Bahrain and Kuwait after U.S. forces struck Iranian targets in response to attacks on tankers in the Strait of Hormuz.

The attacks further undermined a shaky ceasefire agreement and dented hopes of turning the memorandum of understanding signed on June 17 into a permanent peace deal to end the war, which began with U.S.-Israeli airstrikes on Iran on February 28.

"Fundamentally, the events of the last few days significantly weaken any confidence that the current 60-day truce can still evolve into a permanent peace agreement," said Jorge Leon, head of geopolitical analysis at consultancy Rystad Energy.

DIESEL LEADS THE WAY

U.S. ultra-low sulfur diesel futures soared over 14% in intraday trade after Russia introduced a ban on diesel exports on Wednesday as part of a raft of measures to support the domestic fuel market after systematic Ukrainian drone attacks on oil refineries triggered shortages and price spikes.

Ukrainian drones struck three Russian oil refineries, Russian tankers on the Sea of Azov, and pipeline pumping stations, Ukrainian and Russian officials said on Wednesday, in a major night of strikes ranging from the Ukrainian border to the Urals mountains.

That diesel price spike boosted the U.S. 321-crack spread, which measures refining profit margins, to a record high, according to LSEG data going back to 2001.

(Reporting by Shariq Khan, Anushree Mukherjee, Yuka Obayashi, and Jeslyn Lerh;Additional reporting by Seher Dareen and Florence Tan and Scott DiSavino;Editing by Joe Bavier, Aidan Lewis, Mark Potter, Will Dunham, Nick Zieminski and Sanjeev Miglani)