Oil prices soared on Monday, reaching their highest levels since January, following U.S. airstrikes on key Iranian nuclear facilities over the weekend. This escalation has prompted markets to closely observe Iran’s potential reaction. Iran stands as OPEC’s third-largest crude producer.
Brent crude futures rose by $1.52 or 1.97 percent to $78.53 a barrel as of 05:03 GMT (currently trading above $76.6). U.S. West Texas Intermediate crude also climbed, gaining $1.51 or 2.04 percent to $75.35 (currently trading above $75.1).
Both contracts had jumped by over 3 percent earlier in the session, reaching $81.40 and $78.40, respectively, marking five-month highs before some gains were surrendered.
Concerns over Strait of Hormuz fuel price predictions
Market participants anticipate further price increases amid escalating concerns about the potential closure of the Strait of Hormuz, through which approximately a fifth of global crude supply is transported. “The current geopolitical escalation provides the fundamental catalyst for (Brent) prices to traverse higher and potentially spiral towards $100, with $120 per barrel appearing increasingly plausible,” Reuters reported, citing Sugandha Sachdeva, founder of New Delhi-based research firm SS WealthStreet.
According to Iran’s Press TV, the Iranian parliament has approved a measure to close the strait. While Iran has previously threatened to close the strait, it has never acted on those threats. “The risks of damage to oil infrastructure … have multiplied,” stated Sparta Commodities senior analyst June Goh.
Although alternative pipeline routes exist out of the region, a closure of the Strait of Hormuz would still result in significant crude volumes that cannot be exported. Shippers are likely to increasingly avoid the region, she added.Â
Read more: Oil prices fall $1.64 after U.S. delays decision on involvement in Mideast conflict
Goldman Sachs predicts Brent prices could hit $110
Goldman Sachs reported on Sunday that Brent could briefly peak at $110 per barrel if oil flows through the vital waterway were halved for a month, with a subsequent reduction of 10 percent for the following 11 months. The bank maintains that there will be no significant disruption to oil and natural gas supply, emphasizing global incentives to prevent a sustained and large disruption.
Brent has experienced a 13 percent increase since the conflict began on June 13, while WTI has risen by approximately 10 percent. Given that the Strait of Hormuz is crucial for Iran’s own oil exports—an essential source of national revenue—a prolonged closure could impose severe economic damage on Iran itself, making it a double-edged sword, Sachdeva noted.
In related developments, Japan called for de-escalation of the conflict in Iran on Monday, while a South Korean vice industry minister expressed concerns over the potential impact of the strikes on trade.
Oil prices did trim some of the previous session’s gains on Friday, with Brent futures dropping $1.64 after the White House postponed its decision regarding U.S. involvement in the Israel-Iran conflict. Despite this session’s losses, oil prices were still on track for a third consecutive weekly gain. Brent crude futures decreased by $1.64, or 2.08 percent, settling at $77.21 a barrel by 4:40 GMT. For the week, it was up 3.8 percent. Meanwhile, the U.S. West Texas Intermediate crude for July, which did not settle on Thursday due to a U.S. holiday, increased by 53 cents, or 0.71 percent, to $75.67.
