Oil prices rose on Friday and posted their biggest weekly gain in years as the Strait of Hormuz remains effectively closed for shipping traffic, raising supply fears in global markets.
Brent, the benchmark for two thirds of the world's oil, settled 8.52 per cent higher at $92.69 a barrel, while West Texas Intermediate, the gauge that tracks US crude, closed up 12.21 per cent at $90.9 a barrel.
For the week, WTI rose 35.63 per cent and Brent climbed 27 per cent, the biggest weekly gains since the coronavirus pandemic in the spring of 2020.
Oil prices have been climbing since the start of the week after the US and Israel attacked Iran and retaliatory strikes by Tehran across the Gulf region, with damage reported to energy infrastructure in Saudi Arabia, Qatar, Bahrain, the UAE and Oman.
On Saturday, a spokesman for the Ministry of Defence in Saudi Arabia stated that four drones heading towards the Shaybah field were intercepted and destroyed in the Empty Quarter.
QatarEnergy has declared force majeure on liquefied natural gas (LNG) deliveries to affected buyers after halting production, while Strait of Hormuz shipping came to a near standstill as Iranian army attacked ships sailing through the waterway from where about 20 million barrels of crude flows on a daily basis.
The UAE, Saudi Arabia and Iraq have pipelines to transport oil but the capacity is very limited, with Strait of Hormuz is being the best option.
Qatar's energy minister told the Financial Times he expects all Gulf energy producers to shut down exports within weeks, a move he said could drive oil to $150 a barrel, according to an interview published on Friday.
“The world could face a genuine energy shock, potentially pushing oil prices beyond $100 –$120 per barrel or even higher,” in the scenario of a serious disruptions to shipping in the Strait of Hormuz or damage to energy infrastructure across the Gulf, Rania Gule, senior market analyst at XS. Com told The National.
Higher oil prices could also affect the global economy, with a 10 per cent rise in oil prices reducing global gross domestic product growth by about 0.13 per cent while increasing inflation by around 0.15 per cent, she added.
The International Monetary Fund has raised concerns this week that the global economy could be affected by the Middle East conflict and soaring oil prices.
“The impact on energy markets has been clear and direct, with the rise in oil prices and natural gas contracts,” said Nassib Ghobril, head of group economic research and analysis at Byblos Bank.
Brent oil prices increased by 17 per cent since the beginning of March and by 40 per cent since the start of the year. Natural gas contracts also rose by nearly 5 per cent in less than one week.
“Inevitably, this will filter down to inflation in oil importing economies in general, and will drive up inflation expectations in advanced economies and major emerging markets,” he added.
