Oil prices rose on Wednesday as markets assessed the escalating conflict between the United States and Iran, and its potential impact on efforts to end the war and fully reopen the Strait of Hormuz.
Brent crude futures rose 53 cents, or 0.68%, to $78.55 a barrel. US West Texas Intermediate crude futures rose 39 cents, or 0.53%, to $73.91 a barrel.
Futures for both Brent and WTI reached their highest levels since June 22 on Wednesday.
Both benchmark crude grades rose by more than $1 in post-settlement trading on Wednesday after the US military began launching strikes on Iran, which responded with attacks on Kuwait and Bahrain.
"In general, the market is very nervous... any news that reduces the probability of a peace deal adds some pressure to the market," said analyst Ole Hansen of Saxo Bank.
War insurance sources said on Wednesday that some war risk insurers had advised shipping companies to suspend voyages through the Strait of Hormuz, while others were reviewing the terms of their insurance policies, after renewed ship attacks raised the spectre of a return to full-scale war.
Before the latest escalation in the Iran war, prices had been retreating as the market attempted to absorb a surplus of Middle East supplies released by a fragile ceasefire, along with some indications of rising inventories.
Before the Iranian war, which began at the end of February, one-fifth of the world's oil and liquefied natural gas supplies passed through the Strait of Hormuz.
Goldman Sachs noted that risks to Gulf oil flows and prices in the near term remain present.
The bank expects flows to return to normal by the end of July if negotiations continue, sanctions waivers on Iranian oil are reinstated, and shippers receive security guarantees.
That scenario requires an increase in oil flows through the Strait of Hormuz of 6.6 million barrels per day.
By contrast, the investment bank said that a failure of talks, an escalation in attacks on oil tankers, and the possibility of the United States imposing an embargo on Iranian oil could lead to further disruption to flows.
"In the base case, Brent is likely to trade in the $75–$85 range over the next month, with a slight upward bias," said Anika Gupta, head of macro research at WisdomTree.
She added: "The underlying supply recovery is real but incomplete, and the surplus narrative has lost credibility for the time being."