(Bloomberg) — Oil briefly climbed above $95/bbl Thursday, extending this month’s rally to roughly 30% as escalating military exchanges between the U.S. and Iran, along with mounting disruptions to global crude supplies, fueled concerns over the outlook for energy markets.
Brent futures reached their highest level since early June, before an interim peace agreement unraveled. Iran said there are currently no negotiations underway, according to the Mehr news agency, while hostilities intensified across the Middle East. Three tankers were attacked in the Strait of Hormuz near Oman, adding to concerns over the security of one of the world’s most important oil shipping routes.
The latest gains were driven by continued U.S. military strikes on Iran, renewed Houthi threats to commercial shipping in the Red Sea and disruptions at the Caspian Pipeline Consortium (CPC) terminal on Russia’s Black Sea coast, which handles most of Kazakhstan’s crude exports. The conflict has pushed oil prices sharply higher in recent weeks as traders weigh the potential for additional supply disruptions.
President Donald Trump said Wednesday the U.S. would retaliate against Iranian attacks on shipping in the Strait of Hormuz and warned of military action if Tehran-backed Houthi forces disrupt traffic through the Red Sea. While some vessels have slowed or altered course, others continue transiting Hormuz, leaving uncertainty over future oil flows from the region.
“This latest escalation and throttling of flows by Iran has again opened the door to fatter right-tail scenarios the longer it goes on,” said Ryan McKay, senior commodity strategist at TD Securities.
The U.S. military has now conducted 11 consecutive days of operations targeting Iran, according to U.S. Central Command, which said the Strait of Hormuz remains open despite continued Iranian aggression. Analysts caution, however, that the longer the conflict persists, the greater the risk of meaningful supply disruptions.
Several banks have raised the possibility of triple-digit oil prices if tensions continue. Bernstein said Brent could exceed $100/bbl before year-end if OECD inventories continue to decline, while Goldman Sachs has also identified a return to $100 oil as a potential scenario, though not its base-case forecast.
“It is obvious that there is a geopolitical premium,” Equinor CFO Torgrim Reitan said in a Bloomberg Television interview. “This time around it is very different, because storage is down, there is no oversupply situation and the physical situation can easily be visible in the market.”
Market indicators continue to point to tightening supply conditions. Brent and WTI prompt timespreads remain in a steep backwardation structure of more than $3/bbl, reflecting strong demand for near-term crude deliveries.
Meanwhile, the U.S. Energy Information Administration reported Wednesday that commercial crude inventories increased by 2 MMbbl last week, while gasoline and distillate stockpiles also rose. Even so, traders are expected to focus increasingly on U.S. crude exports as buyers seek alternatives to potentially disrupted Middle Eastern supplies.
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