Brent crude rose 10% to around $80 a barrel on Sunday, oil traders said, while analysts predicted prices could rise as high as $100 after US and Israeli attacks on Iran plunged the Middle East into a new war.
The main driver of this market volatility is the critical Strait of Hormuz. Ajay Parmar, director of energy and refining at ICIS, said: “While military strikes in themselves support oil prices, the key factor here is the closure of the Strait of Hormuz.”
Most tanker owners, oil majors and trading houses have suspended shipments of crude oil, fuel and liquefied natural gas through the Strait of Hormuz, trading sources said, after Tehran warned ships not to pass through the waterway. More than 20% of the world's oil is transported through the Strait of Hormuz.
“We expect prices to open (after the weekend) much closer to $100 a barrel and perhaps surpass that level if we see a prolonged Strait cutoff,” Parmar said.
Middle East leaders have warned Washington that a war against Iran could lead oil prices to jump above $100 a barrel, said RBC analyst Helima Croft. Barclays analysts also said prices could hit $100.
Oil producers group OPEC+ agreed on Sunday to increase output by 206,000 barrels per day (bpd) from April, a modest increase that represents less than 0.2% of global demand.
While some alternative infrastructure could be used to bypass the Strait of Hormuz, the net impact of its closure would be a loss of between 8 million and 10 million bpd of crude oil supply even after diverting some flows through Saudi Arabia's East-West pipeline and the Abu Dhabi pipeline, said Rystad energy economist Jorge León.
Rystad expects prices to rise $20 to around $92 a barrel when trading opens.
The Iran crisis also prompted Asian governments and refiners to evaluate oil reserves and alternative shipping routes and supplies.
