Oil prices surged over the weekend, with Brent crude spiking by 10% to approximately $80 per barrel, according to oil traders. Analysts are now forecasting that prices could potentially reach $100 per barrel following military actions by the U.S. and Israel against Iran, leading to heightened tensions in the Middle East.
The global oil benchmark has been on an upward trend this year, hitting $73 per barrel on Friday, its highest level since July. The concerns over potential disruptions in the oil supply chain due to recent events have further fueled the price surge. Futures trading remained 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 crucial 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 following warnings from Tehran. The Strait of Hormuz facilitates the movement of more than 20% of global oil shipments.
Experts anticipate that oil prices may open significantly higher, potentially surpassing $100 per barrel if the closure of the Strait persists. Middle East leaders have cautioned that a conflict with Iran could push oil prices beyond $100 per barrel. While RBC analysts foresee prices remaining above $90 per barrel in the short term, Rabobank analysts have slightly more conservative projections.
The OPEC+ group of oil producers has agreed to a modest increase in output by 206,000 barrels per day starting in April, representing less than 0.2% of global demand. Despite potential alternative routes to bypass the Strait of Hormuz, Rystad energy economist Jorge Leon expects a substantial loss of 8-10 million barrels per day in crude oil supply even after diverting some flows through other pipelines.
Rystad predicts a price increase of around $20, reaching approximately $92 per barrel once trading resumes. The escalating tensions in the Middle East have prompted Asian governments and refiners to evaluate their oil reserves and explore alternative supply options. Kpler analysts suggested that India might consider turning to Russian oil to offset any potential disruptions in Middle East oil supply.
