Oil prices rose in Asian trade on Wednesday, extending a 4% gain from the previous session amid concerns that the Iran-Israel conflict could disrupt supplies.

Brent crude rose 26 cents, or 0.3%, to $76.71 a barrel by 0440 GMT. U.S. West Texas Intermediate crude rose 35 cents, or 0.5%, to $75.19 a barrel.

U.S. President Donald Trump on Tuesday called for Iran's "unconditional surrender" as the Iran-Israel air war entered its sixth day.

The U.S. military is deploying more warplanes to the region to bolster its forces, three officials said on Tuesday.

Analysts said the market is mostly concerned about supply disruptions in the Strait of Hormuz, which carries a fifth of the world's seaborne oil. Iran is OPEC's third-largest producer, extracting about 3.3 million barrels per day (bpd) of crude, but spare capacity among producers in the Organization of the Petroleum Exporting Countries and its allies could easily cover that.

"A material disruption to Iran's production or export infrastructure would add upward pressure on prices. However, even if all Iranian exports were lost, they could be replaced by spare capacity from OPEC+ producers… of around 5.7 million bpd," Fitch analysts said in a client note.

Brent crude prices have risen about $10 a barrel over the past two weeks, and Fitch analysts said they expect the geopolitical risk premium in oil prices to remain contained at around $5 to $10.

In another sign of market jitters, Brent crude's premium to the Middle East benchmark Dubai jumped above $3 a barrel on Wednesday, market sources said, hitting its highest level since late September 2023, according to LSEG data.

The market is also looking ahead to the second day of the US Federal Reserve's discussions on Wednesday, where the central bank is expected to keep its benchmark interest rate in a range of 4.25%-4.50%.

However, the conflict in the Middle East and the risk of a slowdown in global growth could prompt the Fed to potentially cut rates by 25 basis points in July, ahead of current market expectations for September, said Tony Sycamore, market analyst at IG.

"The situation in the Middle East could be a catalyst for the Fed to sound more dovish, as it did after the Hamas attacks on October 7, 2023," Sycamore said.

Lower interest rates generally boost economic growth and oil demand.

However, what confuses the Fed's decision is that the conflict in the Middle East is also creating a new source of inflation through soaring oil prices. (alg)

Source: Reuters