Brent crude surged by 10 percent to approximately $80 per barrel in informal trading on Sunday, as reported by oil traders. Analysts are forecasting a potential increase in prices to as high as $100 per barrel following military actions by the U.S. and Israel targeting Iran, which have escalated tensions in the Middle East.
The global oil benchmark has been on a rally this year, hitting $73 per barrel on Friday, the highest level since July. Concerns over possible attacks intensified following the recent events. Futures trading remains closed during the weekend.
Ajay Parmar, the director of energy and refining at ICIS, highlighted that the closure of the Strait of Hormuz is a significant factor impacting oil prices. Many key players in the oil industry, including 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 issued by Tehran. Over 20 percent of the world’s oil passes through this crucial waterway.
Parmar anticipates that oil prices could start the week closer to $100 per barrel and potentially surpass that level if the disruption in the Strait of Hormuz persists. Leaders in the Middle East have cautioned the U.S. about the potential for oil prices to exceed $100 per barrel in the event of a conflict with Iran, according to RBC analyst Helima Croft. Rabobank analysts, however, are slightly more conservative, expecting prices to remain above $90 per barrel in the short term.
In a move to address the situation, the OPEC+ group of oil producers agreed to increase output by 206,000 barrels per day starting in April, representing a modest rise of less than 0.2 percent of global demand.
Although there are options to redirect oil flows 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 with efforts to reroute some through pipelines in Saudi Arabia and Abu Dhabi, as highlighted by Rystad energy economist Jorge Leon. Rystad projects a potential price increase of around $20 to approximately $92 per barrel once trading resumes.
Amid the escalating Iran crisis, Asian governments and refiners are evaluating oil stockpiles and exploring alternative shipping routes and suppliers. Kpler analysts suggested in a webinar that India might consider turning to Russian oil as a substitute for potential supply shortages from the Middle East.