Oil prices surged past US$110 a barrel Monday for the first time in more than three and a half years, as escalating conflict in the Middle East threatened critical energy infrastructure and shipping routes.
Brent crude, the international benchmark, reached $116.18 shortly after trading resumed on the Chicago Mercantile Exchange, a 25% increase from Friday’s closing price of $92.69. West Texas Intermediate (WTI), the U.S. Benchmark, traded at approximately $116.11 a barrel, up 21.7% from its Friday settlement of $90.90. Market volatility remains high, with prices subject to further fluctuation.
The price increases follow a week of significant gains, with U.S. Crude jumping 36% and Brent crude rising 28% last week, as the conflict expanded to directly target energy assets. Over the weekend, Israel’s military struck oil depots in Tehran, and reports indicated damage to four oil storage tankers and a petroleum transfer terminal.
Roughly 20% of the world’s oil supply, approximately 15 million barrels per day, transits the Strait of Hormuz, a narrow waterway bordered by Iran. The threat of Iranian missile and drone attacks has effectively halted tanker traffic through the strait, disrupting the flow of oil from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates, and Iran itself, according to Rystad Energy.
Several Middle Eastern energy producers have already announced plans to cut output, exacerbating supply concerns. Iraq, Kuwait, and the United Arab Emirates have reduced production as storage facilities fill due to the inability to export crude. The U.S. Government ordered non-emergency government employees to depart Saudi Arabia Monday, citing heightened risks from armed conflict, terrorism, and missile and drone attacks originating from Yemen and Iran.
Mohammad Bagher Qalibaf, speaker of Iran’s parliament, warned that the war’s impact on the oil industry would worsen, potentially hindering both production and sales. Iran currently exports roughly 1.6 million barrels of oil per day, primarily to China, raising concerns about potential supply disruptions and further price increases if those exports are curtailed.
The surge in oil prices has already begun to impact consumers. In the United States, the average price of a gallon of regular gasoline rose to $3.45 on Sunday, an increase of 47 cents from the previous week, according to AAA. Diesel prices also climbed, reaching approximately $4.60 a gallon, an 83-cent weekly increase.
The last time Brent crude traded above $110 per barrel was in June 2022, following Russia’s invasion of Ukraine. The current price levels are fueling fears of renewed inflationary pressures and reduced consumer spending, potentially impacting the global economy. The price of natural gas also increased, rising approximately 11% last week to $3.19 per 1,000 cubic feet.
