Oil prices approached $100 a barrel yesterday with traders and analysts warning of a renewed supply crunch, as hostilities between the US and Iran exacerbated supply concerns. The price of benchmark Brent crude rose above $98 a barrel during the day for the first time since late July, following US strikes on three Iranian crude oil tankers over the weekend in retaliation for Iranian missile attacks on two US Navy warships. Fighting continued with a strike on Saudi Aramco oil facilities in the Saudi Arabian city of Jizan yesterday. "This represents a significant escalation," said Arne Lohmann Rasmussen, chief analyst at Global Risk Management.

He said markets would now watch for signs of disruption to oil shuttling services run by oil producers and traders, which use ship-to-ship transfers just outside the Gulf and have been a lifeline for oil markets in recent months. Energy Aspects, a consultancy, said commodity funds that had spent much of the conflict betting on lower prices or staying on the sidelines were now "turning bullish, largely driven by the view that a tipping point in global [reserves] is approaching". It added that oil reserves outside China had fallen by more than 400mn barrels since the Iran war began and the volume of oil in tankers at sea was at "multiyear lows".

Traders are increasingly taking the view that the Iran war will take much longer to resolve than previously expected. One trading house executive said their base case was now that the Strait of Hormuz "would never return to normal", referring to the prewar flows of 20mn barrels a day of crude and fuels that used to pass through the chokepoint.