Oil prices surged sharply yesterday as Iran intensified its attacks on oil facilities and tankers in the Middle East, raising concerns about the prolonged duration of conflict and potential disruptions in crude oil flows through the Strait of Hormuz. During trading, Brent crude futures jumped by $5.95, or 6.47%, reaching $97.93 per barrel after briefly surpassing $100 per barrel earlier in the session. Meanwhile, U.S. West Texas Intermediate crude rose by $5.25, or 6%, hitting $92.50.
Brent crude reached a peak of $119.50 per barrel on Monday, marking the highest level since mid-2022, before taking a dip following comments from U.S. President Donald Trump suggesting that the war with Iran could conclude swiftly.
The Gulf countries have reduced their oil production by at least 10 million barrels per day, primarily due to a virtual halt in shipping routes via the Strait of Hormuz.
Standard Dubai crude in the Middle East saw a significant increase yesterday, exceeding $50 per barrel for the first time in at least eight years, following a rise in Iranian attacks on oil and transport facilities in the region. Additionally, both Oman and Murban crude prices also experienced an uptick.
On Wednesday, the International Energy Agency announced the largest coordinated emergency release of strategic oil reserves in its history, mobilizing 400 million barrels from the stocks of major industrialized nations in an effort to address the oil supply crisis that has impacted global energy markets since the commencement of U.S. and Israeli military operations against Iran on February 28.
This marks the sixth time since the agency was established in 1974, following the Arab oil embargo, that it has activated its emergency response mechanism. The previous record release was 182 million barrels in 2022 following Russia’s full-scale invasion of Ukraine, which this latest announcement more than doubles.
The International Energy Agency stated that the conflict in the Middle East has resulted in the largest disruption to oil supplies in the history of global markets.
In its most recent monthly oil market report, the agency indicated that the total oil production of the Gulf Arab states has decreased by at least 10 million barrels per day due to the ongoing conflict, representing about 10% of global demand.
John Evans, an analyst at PVM, noted that the market is cautiously approaching the IEA’s decision regarding the withdrawal, citing uncertainty about the timeline, which is expected to span 90 days – translating to about 4.5 million barrels per day. Before the outbreak of war, approximately 20 million barrels of oil passed through the strait daily; however, current figures are exceedingly low, and alternatives for bypassing this waterway are limited.
Goldman Sachs forecasts that the average price of Brent crude will reach $98 per barrel in March and April before declining to $71 by the fourth quarter of the year. However, the bank cautioned that a more pessimistic scenario, involving disruptions to oil shipping through the Strait of Hormuz lasting a month, could see average prices rise to $110 during March and April.
Maritime security and risk assessment firms reported that Iranian boats laden with explosives attacked two fuel tankers in Iraqi waters, resulting in fires on board and the death of one crew member on Wednesday. This incident followed missile strikes on four ships in Gulf waters.
Sources indicated yesterday that China has ordered an immediate ban on the export of refined fuel in March, a precautionary measure to mitigate potential domestic fuel shortages arising from the ongoing conflict.