Oil prices surged on Sunday, with Brent crude spiking by 10% to reach around $80 per barrel, according to oil traders. Analysts are now forecasting that prices may soar even higher, potentially hitting $100 per barrel, following military actions by the U.S. and Israel against Iran that have escalated tensions in the Middle East.
The global oil benchmark has been on a steady rise, climbing to $73 per barrel on Friday, its highest level since July, amid mounting concerns over possible attacks, which materialized the following day. Futures trading was closed during the weekend.
Ajay Parmar, the director of energy and refining at ICIS, highlighted that the closure of the crucial Strait of Hormuz is the primary factor driving the increase in oil prices due to the military strikes. With more than 20% of global oil passing through this strait, most tanker owners, oil majors, and trading houses have halted shipments of crude oil, fuel, and liquefied natural gas through the waterway following warnings from Tehran.
Experts anticipate that oil prices could open significantly higher post-weekend, likely approaching or even exceeding the $100 per barrel mark if the closure of the Strait of Hormuz persists. Middle Eastern leaders have cautioned the U.S. about the potential for oil prices to surpass $100 per barrel in the event of a war with Iran, as per RBC analyst Helima Croft. Meanwhile, Rabobank analysts foresee prices remaining above $90 per barrel in the short term.
In response to the escalating situation, the OPEC+ group of oil producers has agreed to a modest output increase of 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, the closure could lead to a significant loss of 8-10 million barrels per day in crude oil supply, even after redirecting some flows via pipelines in Saudi Arabia and Abu Dhabi, according to Rystad energy economist Jorge Leon.
Rystad projects a price surge of around $20, pushing oil prices to approximately $92 per barrel once trading resumes. The crisis has also prompted Asian governments and refiners to evaluate oil reserves and explore alternative shipping routes and suppliers, with India considering turning to Russian oil to offset potential disruptions in Middle East supply chains.