Brent crude oil surged by 10% to approximately $80 US per barrel in over-the-counter trading on Sunday, as reported by oil traders. Analysts are projecting a potential increase in prices to as much as $100 US per barrel following the U.S. and Israeli military actions against Iran that have escalated tensions in the Middle East.
The global oil benchmark has shown a strong rally this year, hitting $73 US per barrel on Friday, marking the highest level since July. This surge has been fueled by rising concerns about possible attacks, which materialized a day later, while futures trading remains closed over the weekend.
Ajay Parmar, the director of energy and refining at ICIS, highlighted the significance of the military attacks in supporting oil prices, emphasizing that the closure of the Strait of Hormuz is a crucial factor. Trade sources revealed that most tanker owners, oil majors, and trading houses have halted shipments of crude oil, fuel, and liquefied natural gas through the Strait of Hormuz in response to warnings from Tehran. The waterway serves as a vital route for over 20% of the world’s oil transportation.
According to Parmar, it is anticipated that oil prices will open significantly higher, potentially nearing $100 US per barrel, and could surpass this level if there is an extended disruption in the operations of the Strait of Hormuz. Middle East leaders have cautioned the U.S. that a conflict with Iran could push oil prices beyond $100 US per barrel, as mentioned by RBC analyst Helima Croft. Rabobank analysts hold a slightly less optimistic view, foreseeing prices remaining above $90 US per barrel in the short term.
The OPEC+ alliance of oil-producing nations reached an agreement on Sunday to raise output by 206,000 barrels per day starting in April, representing a modest increase equivalent to less than 0.2% of global demand. Rystad energy economist Jorge Leon noted that while there are potential alternative routes to bypass the Strait of Hormuz, the closure of the strait could result in a significant 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 predicts a price surge of around $20, reaching approximately $92 US per barrel when trading resumes. The escalating Iran crisis has prompted Asian governments and refiners to evaluate their oil stockpiles and explore alternative shipping routes and supplies. Kpler analysts suggested in a webinar that India might consider turning to Russian oil to compensate for potential disruptions in Middle East oil supply.