Oil Surges 3% on Supply Concerns as Iran Conflict Escalates

Oil prices surged more than 3% on Thursday, extending a rally as the escalating U.S.-Israeli war with Iran raised fears of prolonged disruptions to vital Middle East oil and gas supplies.

Brent LCOc1 crude advanced $2.44, or 3%, to $83.84 per barrel by 0722 GMT, a fifth session of gains. U.S. West Texas Intermediate crude CLc1 rose $2.44, or 3.27%, to $77.10.

Crude oil markets remained on edge as they face ongoing risks to supply following the attacks in the Middle East, with concerns centred on trade flows through the Strait of Hormuz, ANZ analysts said in a note on Thursday.

Iran launched a wave of missiles at Israel early on Thursday, sending millions of residents into bomb shelters as the conflict entered its sixth day and just hours after moves to halt the U.S. attacks were blocked in Washington.

On Wednesday, a U.S. submarine sank an Iranian warship off Sri Lanka, killing at least 80 people, and NATO air defences destroyed an Iranian ballistic missile fired towards Turkey.

Iranian forces have struck oil tankers in or near the Strait of Hormuz. Explosions were reported near a tanker off Kuwait, according to the United Kingdom Maritime Trade Operations.

The escalation came as the powerful son of Iran's slain supreme leader emerged as a frontrunner to succeed him, suggesting Tehran was not about to buckle to pressure five days after the United States and Israel launched a military campaign that has killed hundreds and convulsed global markets.

Iraq, the second-largest crude producer in the Organization of the Petroleum Exporting Countries, has cut output by nearly 1.5 million barrels a day for lack of storage and an export route, officials told Reuters.

Qatar, the biggest liquefied natural gas producer in the Gulf, declared force majeure on gas exports on Wednesday, with sources saying a return to normal production volumes may take at least a month.

Two oil traders said they held bullish expectations for oil prices as a quick resolution to this war seemed unlikely.

At least 200 ships, including oil and liquefied natural gas tankers as well as cargo ships, remained at anchor in open waters off the coast of major Gulf producers including Iraq, Saudi Arabia and Qatar, according to Reuters estimates based on ship-tracking data from the MarineTraffic platform.

Hundreds of other vessels remained outside Hormuz unable to reach ports, shipping data showed. The waterway is a key artery for around a fifth of the world's oil and LNG supply.

China's government has asked companies to suspend signing new contracts to export refined fuel and to try to cancel shipments already committed, industry and trade sources said on Thursday.

(Reuters - Reporting by Katya Golubkova in Tokyo and Siyi Liu in Singapore; Editing by Clarence Fernandez, Jacqueine Wong and Tom Hogue)