Oil prices have surged to more than $119 a barrel, the highest level seen since mid-2022, as fears of prolonged shipping disruptions intensify due to the ongoing U.S.-Israeli conflict with Iran.
- Oil prices have surged to more than 9 a barrel, the highest level seen since mid-2022, as fears of prolonged shipping disruptions intensify due to the ongoing U.S.-Israeli conflict with Iran.
- The Strait of Hormuz, a critical passage for approximately one-fifth of the world’s oil and liquefied natural gas, remains effectively shut down, exacerbating concerns over supply continuity.
On Monday, Brent crude futures experienced a remarkable increase, climbing $12.77, or 14%, to reach $105.46 per barrel by 1126 GMT. U.S. West Texas Intermediate (WTI) crude also saw significant gains, rising $12.66, or 14%, to $103.56.
Oil prices: Historic Price Surge
Brent reached a peak of $119.50 a barrel during a volatile trading session, marking one of the largest price jumps in a single day. WTI similarly peaked at $119.48, illustrating the dramatic fluctuations in the market. Since the last close before the start of U.S. and Israeli military actions on February 28, Brent has surged by as much as 66%, while WTI has increased by 77%.
Market Dynamics Reflect Supply Concerns
The current market structure suggests acute supply shortages, with front-month Brent contracts trading at a premium of nearly $36 over contracts for delivery in six months. This premium, which indicates a state of backwardation, surpasses the previous high of around $23 recorded in March 2022 during the early weeks of the Russia-Ukraine conflict.
The Strait of Hormuz, a critical passage for approximately one-fifth of the world’s oil and liquefied natural gas, remains effectively shut down, exacerbating concerns over supply continuity.
Political Developments and Their Impact
The appointment of Mojtaba Khamenei as Iran’s supreme leader has further inflamed tensions, as this signals that hardliners continue to hold sway in Tehran just a week into the conflict with the U.S. and Israel. Analysts warn that if the situation persists, consumers and businesses globally might face extended periods of elevated fuel prices, as suppliers contend with damaged infrastructure and disrupted logistics.
Rising Gasoline Prices in the U.S.
In the U.S., gasoline prices have surged to around $3.22 a gallon, the highest since 2022. This rise comes at a politically sensitive time, as President Donald Trump has assured consumers that the impact on their cost of living will be limited ahead of the mid-term elections.
UBS analyst Giovanni Staunovo noted, “Alternatives are limited, such as tapping strategic oil reserves, but in comparison to the potential magnitude of the supply disruption if the Strait stays closed longer, they are a drop in the ocean.”
Calls for Strategic Reserves Release
U.S. Senate Democratic Leader Chuck Schumer has urged Trump to consider releasing strategic petroleum reserves to mitigate the impact of rising prices. Additionally, a French government source indicated that the Group of Seven nations would discuss measures to address the crisis.
Production Cuts from Major Producers
In response to the escalating situation, Saudi Aramco has commenced cutting output at two of its oilfields. It is anticipated that other OPEC heavyweights, including the United Arab Emirates, may soon follow suit as their oil storage capacity dwindles. Reports indicate that Iraqi oil production from its main southern oilfields has plummeted by 70% due to maximum storage capacity being reached.
Meanwhile, the Kuwait Petroleum Corporation has declared force majeure on shipments, although it has not specified the extent of its production cuts. Saudi Aramco is reportedly offering more than 4 million barrels of crude in rare tenders to compensate for the disruptions caused by the closure of the Strait of Hormuz.
Infrastructure Damage and Supply Chain Disruptions
The impact of the conflict is also felt in gas markets, with Qatar halting production following attacks on key infrastructure. Furthermore, a fire in the UAE’s Fujairah oil industry zone, caused by falling debris, did not result in any injuries but has added to the existing challenges faced by the industry.
Bahrain’s BAPCO has announced a force majeure following an attack on its refinery complex, and Saudi Arabia has already closed its largest oil refinery, compounding the ongoing disruptions in fuel supply.
