Oil continues to rise amid war with Iran, Brent closes above USD 100

Oil prices continued to surge today, rising to their highest level in almost four years. Iran stepped up attacks on oil and transport infrastructure in the Middle East, and Iran’s Supreme Leader Mojtaba Khamenei vowed to keep the Strait of Hormuz closed, a key route for oil shipments.

North Sea Brent crude rose 9.2 percent to close at USD 100.46 a barrel, after climbing as high as USD 101.6 during the day. US light crude WTI gained 9.7 percent to USD 95.70 a barrel. Both contracts closed at their highest levels since August 2022.

Oman evacuated all ships from a key export terminal near the Strait of Hormuz, while in Iraqi waters, Iranian vessels loaded with explosives struck two fuel tankers overnight, setting them ablaze. Another sign of mounting tension is that Chinese refineries have begun cancelling agreed deliveries of fuels such as gasoline and diesel, Bloomberg reported.

Israeli and US forces launched an attack on Iran on the last day of February. In retaliation, Iran is attacking Israel and Arab states in the region that host US military bases. Traffic through the Strait of Hormuz has almost ground to a halt as a result of the war; under normal conditions, about one-fifth of global oil and natural gas supplies pass through the strait. Citigroup estimates that disruption to shipping through the Strait of Hormuz is removing seven to 11 million barrels a day from the oil market.

On Wednesday, projectiles struck three ships off the coast of Iran, the UK Maritime Trade Operations (UKMTO) said, adding that one vessel was hit in the Strait of Hormuz, about 20 kilometres north of Oman.

On Wednesday, Iran threatened to shift from retaliatory strikes in response to the attacks to continuous attacks on its adversaries. “We will not allow a single litre of oil to reach the US, the Zionists (Israel – CTK note) and their partners. Any vessel or tanker heading to them will be a legitimate target,” Ebrahim Zolfaghari, a spokesman for Iran’s central military command, said according to Reuters. He also threatened to push oil prices up to USD 200 a barrel.

The International Energy Agency (IEA) announced on Wednesday that it would release a record 400 million barrels of oil from emergency reserves, with all 32 member countries unanimously agreeing to the move. It is a response to disruption in the oil market caused by the effects of the war in the Middle East.

Analysts at Bloomberg and Germany’s ifo Institute for Economic Research say that, if stocks are released at a rapid pace, the 400 million barrels could be exhausted in about three months.

“The IEA’s record release of oil stocks buys time, but at four million barrels a day, they could be depleted in just 100 days under our aggressive release scenario, and lasting relief still depends on the Strait of Hormuz reopening,” Bloomberg analysts Salih Yilmaz and Will Hares said.

If 25 percent of usual oil supplies were unavailable because of the war and the Strait of Hormuz were closed, “then we have strategic oil reserves for three months worldwide,” ifo President Clemens Fuest told DPA.

The announced volume of 400 million barrels is significantly higher than the 182 million barrels member countries released onto the market in two rounds in 2022, when Russia launched its invasion of Ukraine. “The challenges we face in the oil market are unprecedented. That is why I am very pleased that IEA member countries have responded with an unprecedented collective emergency measure,” IEA Executive Director Fatih Birol said.

The Wall Street Journal (WSJ) reported last week that Kuwait had begun curbing production at some oil fields because it had run out of storage capacity for its accumulated oil.

Oil prices in dollars per barrel (about 159 litres)