Crude snapped a week of quiet on Monday. WTI jumped 3.2% to $86.27 a barrel and Brent climbed 2.9% to $91.14 after US forces struck Iranian positions along the Strait of Hormuz for the first time in weeks, putting supply risk right back at the center of the oil trade.
What happened on Larak Island
US forces struck two rocket launchers on Iran's Larak Island on Sunday, Bloomberg reported. Revolutionary Guard crews had been readying the launchers to fire mine-carrying rockets into the shipping channel. Before the conflict, about a fifth of the world's oil and liquefied natural gas moved through that stretch of water.
It was the first US strike on Iranian targets that Washington has confirmed since late July. Iran called the strike deadly and warned that a response is coming.
The timing is rough for shipping. US crews only finished sweeping the strait's main lanes for mines last week, work that had raised hopes of tanker traffic getting back to normal. A new round of mines would erase that progress in days.
The fear premium comes back
Monday's move reverses much of last week's slide. Brent had dropped almost 10% over three sessions in late August, falling from above $94 to near $85, as traders concluded that Washington preferred economic pressure over military action. That bet held up for nearly a week. It does not anymore.
The session showed how fast sentiment can turn. WTI traded as low as $82.25 before buyers piled in, and Brent touched $91.38 at its high.
Not everything rallied. Natural gas slipped 2.1% to $2.86 per million BTU, and the OPEC basket price, which lags spot moves, was still catching up with last week's decline.
Rates are the other half of the story
The strike landed in a market already digesting hawkish signals from the Federal Reserve. Chair Kevin Warsh's comments at Jackson Hole have traders pricing in a possible rate hike next month, which lifted the dollar and would normally weigh on crude. Monday's rally came despite that headwind, a sign of how much weight the market still puts on the Hormuz threat.
What to watch
Iran's response is the open question. A limited answer would let prices settle back, while any new mining attempt could push Brent back to its August highs above $94. Shipping insurers, who had begun trimming premiums for Gulf transits, will be watching just as closely as traders.
OPEC+ has said it plans to hold production quotas steady for the rest of the year. Barring a policy surprise, the strait remains the single biggest variable for oil prices this fall.