Brent crude surged by 10% to approximately $80 US per barrel in over-the-counter trading on Sunday, with analysts forecasting a potential climb to $100 US following U.S. and Israeli strikes on Iran that escalated tensions in the Middle East. The global oil benchmark had already shown strength this year, hitting $73 US per barrel on Friday, its highest level since July, driven by mounting concerns over possible attacks.
Ajay Parmar, director of energy and refining at ICIS, noted that while the military actions support oil prices, the critical factor is the potential closure of the crucial Strait of Hormuz. Trade sources revealed that most tanker owners, oil majors, and trading houses had halted shipments of crude oil, fuel, and liquefied natural gas through the Strait of Hormuz in response to warnings from Tehran, as over 20% of global oil passes through this waterway.
Expectations are high for oil prices to open significantly closer to $100 US per barrel after the weekend, with the possibility of surpassing that mark if the closure of the Strait persists. Middle East leaders have cautioned that a conflict with Iran could propel oil prices above $100 per barrel, while RBC analyst Helima Croft and Rabobank analysts anticipate prices to remain above $90 per barrel in the near term.
The OPEC+ group of oil producers reached an agreement on Sunday to increase output by 206,000 barrels per day starting in April, a move that represents a modest boost of less than 0.2% of global demand. Although there are potential alternate routes to bypass the Strait of Hormuz, the closure could result in a loss of 8 to 10 million barrels per day of crude oil supply, even with some redirection through pipelines in Saudi Arabia and Abu Dhabi, according to Rystad energy economist Jorge Leon.
Rystad projects a price increase of around $20 to reach approximately $92 US per barrel when trading resumes. The escalating Iran crisis has spurred Asian governments and refiners to evaluate oil stockpiles and alternative shipping options, with Kpler analysts suggesting that India might pivot towards Russian oil to offset potential disruptions in Middle East supply chains.
