Oil prices rose sharply Thursday as concerns mounted over the potential for a prolonged closure of the Strait of Hormuz. The conflict between the United States and Iran is disrupting oil and gas flows from the Middle East, while supply remains constrained due to production cuts.
Brent crude increased by $1.67, or 2.05 percent, to $83.07 a barrel by 0141 GMT, according to reports. West Texas Intermediate (WTI) crude rose $1.94, or 2.60 percent, to $76.60 a barrel.
The scope of the U.S.-Iran conflict expanded Wednesday after a U.S. Strike targeted an Iranian warship off the coast of Sri Lanka. Republican senators have voiced support for the military campaign ordered by President Donald Trump against Iran, voting against a resolution that aimed to halt the war and require congressional authorization before any further military action.
Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), has reduced its crude oil production by approximately 1.5 million barrels per day due to a lack of storage capacity and disruptions to a key export route, according to Reuters sources. Qatar, a major exporter of liquefied natural gas, declared force majeure on its gas exports Wednesday, with sources indicating a return to normal production levels could take at least a month.
Shipping through the Strait of Hormuz, a critical waterway for roughly 20 percent of global energy consumption, has been almost completely halted for the fifth consecutive day amid the conflict with Iran. J.P. Morgan, in a note to clients, stated that while Iran has largely refrained from targeting critical energy infrastructure, it has maintained a very high level of shipping risk. The firm estimates approximately 329 oil tankers are currently stranded in the Gulf.
“Storage capacity in the Gulf Cooperation Council countries and prevailing energy prices are factors limiting the duration of the U.S. Campaign,” J.P. Morgan added.
