Oil prices surged more than 3% on Monday, pushing Brent crude above the $90-a-barrel mark, after the United States and Iran intensified military attacks in the Middle East, disrupting energy shipments through the Strait of Hormuz.
Crude oil price on July 20
Brent crude futures rose $2.69, or 3.05%, to $90.79 a barrel, their highest level since June 11. The benchmark extended last week's rally, when it gained 15.9%, marking its biggest weekly advance since April. U.S. West Texas Intermediate (WTI) crude climbed $2.19, or 2.65%, to $84.68 a barrel, the highest since June 12. Front-month WTI prices had jumped 15.5% last week, their strongest weekly gain since early March.
Tensions in the Middle East worsened over the weekend as the U.S. carried out a ninth consecutive night of strikes on Iran, while U.S. allies Kuwait and Bahrain reported fresh Iranian attacks.
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Both sides have increasingly targeted shipping activity in recent days. The U.S. said it is enforcing a naval blockade on Iranian ports, while Iran said it is targeting vessels that violate its navigation rules in the Strait of Hormuz, a vital waterway that typically carries around one-fifth of global oil trade. Separately, the United Kingdom Maritime Trade Operations agency reported that a vessel was on fire northwest of Oman's Kumzar early on Monday.
"The coming days and weeks will provide a clearer picture of the sustainable level of oil exports from the region under renewed dual blockades," Barclays analyst Amarpreet Singh said in a note.
What are experts saying? Goldman Sachs said Brent crude could climb above $110 a barrel in the fourth quarter if the recovery in Gulf exports remains delayed. However, the investment bank expects prices to retreat into the $60s by the end of the year if geopolitical tensions ease and production recovers more quickly than anticipated.
"At the current point there are no signs of a ceasefire again. But in case there is a ceasefire immediately imposed, we don't expect Brent oil prices to fall beyond $70 per barrel. It is likely to remain the lower support for the near term," Pranav Mer, Senior Vice President, Currency and Commodity at JM Financial, told ETMarkets.
Anindya Banerjee, Head of Commodity Research at Kotak Securities, said crude oil has once again started factoring in geopolitical risks. "Any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond," he said.
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He added that the market is responding less to the military action itself and more to the fading prospects of diplomacy. He noted that Tehran has set fresh conditions for restarting negotiations, and every new development is delaying the return of normal tanker movement through the Strait of Hormuz, where traffic had already remained well below pre-war levels.
Nuvama Institutional Equities cautioned that a prolonged closure of the Strait of Hormuz could disrupt nearly 20 million barrels a day of crude oil flows. In such a scenario, it said oil prices could rise to between $110 and $150 a barrel.
