Brent Oil Surges Above $100 as Middle East Conflict Deepens

Brent Oil Surges Above $100 as Middle East Conflict Deepens

Brent crude oil surged above $100 a barrel on Wednesday for the first time since late July as Iran and the United States exchanged attacks on oil tankers, raising fears that the disruption to Middle East energy supplies could worsen.

Brent crude futures rose $3.40, or 3.5%, to $101.32 a barrel by 1515 GMT after reaching $101.55. U.S. West Texas Intermediate crude rose $3.45, or 3.7%, to $96.48 a barrel, its highest level since early June.

Oil prices had generally traded below $100 since late May as markets expected the conflict to remain contained. Hopes for a reduction in hostilities increased after the United States and Iran reached a temporary agreement to cease attacks, although no permanent peace deal had been reached.

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Iran said on Wednesday that it had attacked 10 ships near the Strait of Hormuz, while the United States sank five Iranian oil tankers. The attacks marked the biggest wave of attacks on shipping since the war began six months ago.

Shipping through the Strait of Hormuz has remained well below normal levels. Six commodity vessels passed through the strait on Tuesday, down from nine on Monday and below the 10-day average of about 12, according to preliminary Kpler data.

The strait normally handles about 20% of global oil and gas supplies. Oil flows have fallen below 2 million barrels per day, compared with 8 million to 9 million barrels per day in the week before fighting resumed on August 30, according to Rystad Energy.

The disruption has also affected vessels operating outside the immediate area of the strait.

A seafarer was killed in an incident involving the Gibraltar-flagged oil-products tanker Hercules Star while it was anchored off Dubai, the vessel’s charterer Peninsula said.

Physical oil markets have already reflected the disruption. Dated Brent, the benchmark against which roughly two-thirds of global oil supply is priced, has traded above $100 a barrel since September 3, according to LSEG data.

Fuel prices have also remained elevated. U.S. gasoline prices are averaging $4.22 a gallon, while diesel prices have reached a record and are approaching $6 a gallon. European diesel futures are near $200 a barrel.

The conflict has also widened in Saudi Arabia. Iran-backed Houthi forces have attacked Saudi energy facilities this week, setting some oil installations ablaze and raising concerns over disruption to Gulf energy infrastructure and alternative routes used to transport crude. The attacks have also threatened crude shipments through the Red Sea, an alternative route to the Strait of Hormuz.

Brent’s move above $100 reflects growing concern in the oil market that the conflict could continue to restrict energy supplies from the Middle East for longer than previously expected.

Physical crude oil and fuel prices already above $100

In the physical crude oil market, the dated Brent benchmark, against which roughly two-thirds of global oil supply is priced, has been above $100 a barrel since September 3, according to LSEG data.

Physical oil markets respond more quickly to supply disruptions than futures markets because buyers need to secure alternative cargoes for prompt delivery. Futures contracts, by comparison, typically begin about a month ahead.

Consumers have also been paying the equivalent of more than $100 a barrel for refined fuels such as gasoline and diesel for much of this year, as conflicts have contributed to a global refining crunch and pushed fuel prices higher relative to crude.

U.S. gasoline prices are currently averaging $4.22 a gallon, while diesel prices have reached a record and are approaching $6 a gallon.

European fuel markets remain extremely tight, with diesel futures near $200 a barrel and refining margins at record levels. Supply disruptions linked to the Strait of Hormuz and Russia have pushed fuel prices to historic highs in Europe and the United States.

Red Sea threats

Attacks by Iran-backed Houthis on Saudi energy facilities this week have also set oil installations ablaze, raising concerns that the conflict could expand further.

“Houthi attacks on Saudi energy facilities have widened the threat further, raising concerns that disruption could spread beyond Iranian supply to the infrastructure and alternative routes that have helped keep Gulf crude flowing,” said Daniela Hathorn, senior market analyst at Capital.com.