Brent crude surged by 10% to approximately $80 US per barrel in over-the-counter trading on Sunday, as reported by oil traders. Analysts anticipate that prices could escalate to $100 US following U.S. and Israeli strikes on Iran, which have escalated tensions in the Middle East.
The global oil benchmark has seen a robust rally this year, hitting $73 US per barrel on Friday, the highest level since July. The concerns over potential attacks materialized a day later, as futures trading remained closed over the weekend.
Ajay Parmar, the director of energy and refining at ICIS, highlighted that the military actions are bolstering oil prices, with the closure of the Strait of Hormuz being a crucial factor. Trade sources indicated that many tanker owners, oil majors, and trading houses have halted shipments of crude oil, fuel, and liquefied natural gas through the vital waterway after Tehran issued warnings against passage. Approximately 20% of global oil is transported via the Strait of Hormuz.
Parmar expressed expectations that prices are likely to start much closer to $100 US per barrel after the weekend, potentially surpassing that threshold if the closure of the Strait persists. Middle East leaders have cautioned the U.S. that a conflict with Iran could push oil prices beyond $100 US per barrel, according to RBC analyst Helima Croft. Rabobank analysts, while slightly less optimistic, foresee prices remaining above $90 per barrel in the short term.
OPEC+ members have agreed to increase output by 206,000 barrels per day starting in April, representing a marginal rise of less than 0.2% of global demand. Rystad energy economist Jorge Leon mentioned that despite potential alternative routes to bypass the Strait of Hormuz, the closure could lead to a loss of 8 to 10 million barrels per day of crude oil supply even after redirecting some flows through pipelines in Saudi Arabia and Abu Dhabi.
Rystad anticipates prices climbing by $20 to around $92 US per barrel when trading resumes. The Iran crisis has prompted Asian governments and refiners to review oil stockpiles and consider alternative shipping routes and supplies. In response to potential supply disruptions from the Middle East, Kpler analysts suggested that India might pivot to Russian oil as an alternative source.
This escalating situation in the Middle East has stirred significant volatility in the oil market, with implications for global energy security and economic stability.
