Brent crude jumped 10% to about $80 a barrel over the counter on Sunday, oil traders said, while analysts predicted that crude oil prices could climb as high as $100 after US and Israeli strikes on Iran plunged the Middle East into a new war.
The global oil benchmark has rallied this year and reached $73 a barrel on Friday for its highest since July, buoyed by growing concern over the potential attacks that arrived a day later. Futures trading is closed over the weekend.
“While the military attacks are themselves supportive for oil prices, the key factor here is the closing of the Strait of Hormuz,” said Ajay Parmar, director of energy and refining at ICIS.
Most tanker owners, oil majors and trading houses have suspended crude oil, fuel and liquefied natural gas shipments via the Strait of Hormuz, trade sources said, after Tehran warned ships against moving through the waterway. More than 20% of global oil is moved through the Strait of Hormuz.
“We expect prices to open (after the weekend) much closer to $100 a barrel and perhaps exceed that level if we see a prolonged outage of the Strait,” Parmar said.
Middle East leaders have warned Washington that the Iran war could lead to oil prices jumping to more than $100 a barrel, RBC’s Helima Croft said. Rabobank analysts slightly less bullish, seeing prices holding above $90 a barrel in the near term.
OPEC Move
On Sunday, the Organization of Petroleum Exporting Countries, or OPEC, led by Saudi Arabia and Russia agreed to raise output by 206,000 barrels per day from April—a modest increase representing less than 0.2% of global demand.
While some alternate infrastructure could be used to bypass Strait of Hormuz, the net impact from its closure would be a loss of 8 million to 10 million bpd of crude oil supply even after diverting some flows through Saudi Arabia’s East-West pipeline and Abu Dhabi pipeline, Rystad energy economist Jorge Leon said. Rystad expects prices to rise by $20 to about $92 a barrel when trade opens.
The Iran war also prompted Asian governments and refiners to assess oil stockpiles and alternative shipping routes and supplies. Kpler analysts said in a webinar on Sunday that India might turn to Russian oil to make up for potential Middle East supply loss.
