Oil gains after vessels attacked near Strait of Hormuz

By Nicole Jao

NEW YORK, July 7 (Reuters) - Oil prices rose more than 2% on Tuesday after reports of attacks on vessels near the Strait of Hormuz revived fears of disruptions to shipping through the critical energy transit route.

Brent crude futures gained $1.86, or 2.58%, to $73.85 a barrel, while U.S. West Texas Intermediate crude rose $1.73, also 2.52%, to $70.28 a barrel at 11:34 a.m. ET (1534 GMT).

"The overriding theme this morning is a ship being shot at in the Strait of Hormuz," Saxo Bank analyst Ole Hansen said. "That's bringing some geopolitical risk premium back into the price. It's not a lot compared with what we've seen in the past, but it's the main driver behind the bid in the market."

A Qatari LNG tanker and a Saudi-flagged crude oil tanker were damaged near the Strait of Hormuz, sources said on Tuesday, after reports that Iran's Revolutionary Guards fired missiles at ships in the waterway overnight.

Qatar's foreign ministry spokesperson said Tehran bore full legal responsibility for the attack and any resulting damage or consequences. 

It is the first time an LNG ship from Qatar, a mediator in talks between Washington and Tehran, has been struck since the start of the Iran war at the end of February.

"It's clear that the risk remains," said Andy Lipow, president of Lipow Oil Associates, adding that companies still have to assess whether it is worth it or not to charter oil tankers through the strait.

Talks to reach a final deal between Tehran and Washington will not take place if U.S. threats continue, Iran's foreign minister said on Tuesday, following U.S. President Donald Trump's threat to "finish the job" unless a deal is done.

Investors are monitoring talks between the U.S. and Iran and their implications for shipping through the Strait of Hormuz, which prior to the beginning of the Iran war carried a fifth of the world’s daily supply of oil and LNG.

"Renewed tensions in the Middle East and concerns over the vessel attacks could drag lower oil exports from the Middle East," UBS analyst Giovanni Staunovo said.

Societe Generale said the oil market is expected to shift from a deficit into a surplus in late 2026 and through 2027 as supply growth outpaces slower demand growth.

The bank cut its oil price forecasts to $75 a barrel for the fourth quarter of 2026 from $83 previously and to an average of $73 a barrel in 2027 from $79, adding that inventories should gradually rebuild, although volatility is likely to remain high.

Saudi Arabia is considering expanding the capacity of its crude oil pipeline to the western Red Sea coast, five sources close to the matter said, which would enable the kingdom and possibly its neighbours to transport more oil without using the Strait of Hormuz.

Appetite for buying Saudi crude is limited since, even after the biggest price cut in more than two decades for Saudi Arabian crude oil sold to Asia, some rival Gulf supplies are still cheaper.

Also on Tuesday, Kyiv's military said Ukrainian drones struck eight tankers from Russia's "shadow fleet" of ageing vessels used to bypass sanctions that were delivering fuel to Crimea overnight.

(Reporting by Nicole Jao in New York, Anushree Mukherjee and Pranav Mathur in Bengaluru and Emily Chow in Singapore; Additional reporting by Ahmad Ghaddar in London; Editing by Jacqueline Wong, Jamie Freed, Barbara Lewis and Joe Bavier)