By Naveen Athrappully
Brent crude oil futures hit a high of $106.50 per barrel in late Sunday trading, as the conflict in Iran continues to threaten global oil supply.
Prices hit a high of nearly $120 per barrel on Sunday last week, followed by a decline to the low 80s by Tuesday, March 10. Oil prices then surged once more, closing at $103.89 on Friday. Late March 15, prices hit a high of $106.50, after which they declined to $103.93 as of 9:55 p.m. ET.
The price increase occurred despite the International Energy Agency (IEA) announcing on March 11 that member nations would release a record 400 million barrels of oil from strategic reserves, with the United States contributing 172 million barrels.
“Why is the market rallying despite this large release? First, there are no signs of de-escalation in the Persian Gulf, so there is no end in sight to the disruptions to oil flows through the Strait of Hormuz,” ING Bank said in a March 12 statement.
The Iranian regime has threatened to target energy infrastructure in the Middle East amid U.S. and Israeli attacks against it, creating a supply risk and keeping prices high.
On Friday, the United States hit more than 90 Iranian military targets on Iran’s Kharg Island, but spared the oil and energy infrastructure. The island is Iran and the regime’s most vital economic asset, from where 90 percent of the country’s oil is exported.
Iranian Foreign Minister Abbas Araghchi warned on Saturday that it will retaliate if the United States or Israel targets its oil and energy infrastructure. The retaliation would include attacking facilities in the region belonging to American companies.
Iranian drones hit a key oil terminal in Fujairah in the United Arab Emirates shortly after the attacks on Kharg. Oil loading operations at Fujairah have since resumed, four sources said, but it was unclear if the operations were back to normal.
Fujairah, outside the Strait of Hormuz, is the outlet for about 1 million barrels per day of the UAE’s flagship Murban crude oil—a volume equal to about 1 percent of global demand.
“The U.S. is weighing high-risk ground options including raiding nuclear sites for Iran’s enriched uranium, seizing the Kharg Island oil hub, and occupying southern Iran to protect the Strait of Hormuz,” Erik Meyersson, analyst at financial services group SEB, said in a note. “All of these imply significant escalation and require a tolerance for substantially higher risk.”
On March 11, various regional governmental bodies of Gulf states and maritime security centers reported that multiple commercial vessels had been struck in the Persian Gulf and the Strait of Hormuz.
IEA Oil Release
In addition to concerns about oil supply from the Middle East region, there are also worries that the IEA’s coordinated release of 400 million barrels may not be enough to compensate for supply losses from the war.
“There are concerns about the speed at which this oil will reach the market and whether it will be enough to tie up the market until we see oil flowing through the Strait of Hormuz again,” ING Bank said in its statement.
“As part of the coordinated action, the U.S. will start releasing 172m barrels from its strategic petroleum reserve from next week. This will take approximately 120 days to complete. This works out to a U.S. release of around 1.4m b/d (barrels per day).
“If you assume a similar timeline for other countries, that works out to 3.3m b/d—far short of the supply losses we are seeing from the Persian Gulf.”
The only way oil prices will trade lower in a sustained manner is by ensuring that oil flows freely through the Strait of Hormuz, the bank said. Failure to do so would mean that more price highs “are still ahead of us.”
In the United States, the national average price of regular gasoline was $3.69 per gallon on Sunday, up by nearly 7 percent from the $3.45 a week earlier, according to data from the American Automobile Association.
In California, prices exceeded $5.5 per gallon. In Alaska, Arizona, Oregon, Nevada, Washington, and Hawaii, prices were above $4.
On March 13, Energy Secretary Chris Wright directed Texas-based oil company Sable Offshore Corp. to resume its operations in waters off southern California, invoking the Defense Production Act.
The decision was taken to address supply disruption risks that have “left the region and U.S. military forces dependent on foreign oil,” the Department of Energy said in a statement.
Wright said that the Trump administration “remains committed to putting all Americans and their energy security first.”
On Thursday, Wright said that the U.S. Navy will attempt to escort oil tankers through the Strait of Hormuz, which could start potentially by the end of this month.
Reuters contributed to this report.
