Crude prices surged past $100 a barrel on Thursday despite a record release of global oil reserves, as continued Iranian strikes on energy and transport infrastructure deepened fears of an impending global energy crisis.
Brent, the benchmark for two-thirds of global crude, was up as much as 10 per cent to $101 a barrel during early trade. It was 7.19 per cent higher at $98.59 a barrel at 9.26am UAE time. West Texas Intermediate, the benchmark for US crude oil, climbed 7.16 per cent to $93.50 a barrel.
On Monday, Brent shot past $119.50, its highest since mid-2022, but lost momentum after US President Donald Trump said the Iran war would soon end.
Prices have since swung wildly, driven by headlines, as traders try to assess the impact of the escalating war in the Middle East.
“Despite the wave of optimism seen in the markets at the start of the week, general sentiment continues to reflect extreme caution in trading,” Ahmad Assiri, market strategist at Pepperstone said.
“The common perception that withdrawing approximately 400 million barrels from global oil reserves will solve the crisis is beginning to erode.”
There are no signs of a let up in US-Israeli strikes on Iran and Tehran’s retaliatory attacks on its Arab neighbours in the Middle East.
Tankers hit
Iraq on Thursday shut its oil terminal operations after two foreign tankers carrying fuel oil were hit in its territorial waters, said Farhan Al Fartousi, head of Iraq's General Company for Ports.
“These tankers are approximately 30 miles [48km] from the Iraqi coast,” Mr Al Fartousi told Iraqi state media. “Oil ports have completely ceased operations, while commercial ports remain operational.” Ships, however, are operating in the northern and southern ports of Umm Qasr, he added.
A container ship was also struck off the coast of Jebel Ali by an unknown projectile, UK Maritime Trade Operations said.
Investor sentiment also soured after Bahrain’s Ministry of Interior said Iranian strikes hit fuel tanks in Muharraq governorate and reports that Oman has cleared all ships from its key export terminal outside of the Strait of Hormuz.
The strait, through which 20 per cent of global crude supply passes, has been effectively closed for all traffic since the Middle East war broke out on February 28.
Reserve release overshadowed
The recent spate of strikes from Tehran on regional energy infrastructure and transport network has overshadowed a record release of reserves by the International Energy Agency to try to control a surge in oil prices.
Major global economies on Wednesday agreed to add 400 million barrels of oil stocks from IEA members to the market after a G7 leaders meeting, which addressed ways to tackle the Strait of Hormuz crisis.
Oil reserves released by the G7 states will represent 70 per cent of the amount announced, French President Emmanuel Macron said on Wednesday.
Meanwhile, the US Department of Energy has announced it will release 172 million barrels of oil in an effort to lower energy prices beginning next week.
However, the IEA effort has done little to calm market jitters.
“These volumes are more of a temporary painkiller to face a practical closure of the strait; they are effective for a short window estimated to be around three weeks and do not offer a stability solution for the weeks ahead,” Mr Assiri said.
Oil at $140?
The prolonged closure of the Strait could spell disaster for global economic growth as crude prices could rise to $140 per barrel, analysts say.
Though Mr Trump has suggested taking over control of the strait, Iran has vowed that “not one litre” of oil will pass through the waterway.
“Get ready for oil to be $200 a barrel, because the oil price depends on regional security, which you have destabilised,” said a representative of Iran's military command on Wednesday.
The International Monetary Fund has already started ringing alarm bells of an impending energy crisis in Asia, a rise in inflation and world economic turmoil.
A sustained surge in global oil prices to about $140 a barrel over a two-month period could be sufficient to tip parts of the world economy into a mild recession, Oxford Economics said on Thursday.
“The strength of the subsequent recovery will be determined by how quickly shipping through the Strait of Hormuz rebounds and how fast oil prices, supply-chain stresses and financial market conditions ease,” Ben May, director of global macro research and Ryan Sweet, chief global economist, wrote in a report.
“The rebound in financial markets has been quick following past major military conflicts in the Middle East since the 1990s, but this time it could be more gradual.”
