TLDR
- Both Brent crude and WTI reached $119.50 per barrel on Monday morning before retreating from their highest points since mid-2022.
- Over the weekend, Israel targeted Iranian oil facilities while Iran launched retaliatory strikes against Gulf state oil infrastructure.
- The Strait of Hormuz has been effectively blocked by Iran, disrupting approximately 20% of global oil shipments.
- Finance ministers from G7 nations are convening Monday to coordinate a potential emergency petroleum reserve deployment.
- American gasoline futures jumped more than 10%, approaching four-year peak levels beyond $3.00 per gallon.
Crude oil markets experienced a dramatic surge Monday following unprecedented Israeli military operations targeting Iranian petroleum infrastructure, marking a significant escalation in the conflict that erupted in early March. Both Brent crude and West Texas Intermediate contracts touched $119.50 per barrel during overnight trading, reaching levels unseen since the middle of 2022.
As the trading day progressed, prices moderated somewhat, with Brent settling around $106.80 per barrel and WTI at $102.79 by midday. The retreat from peak levels followed a Financial Times report indicating that G7 finance ministers would convene an emergency session Monday to explore the possibility of tapping strategic petroleum reserves.
The anticipated meeting will reportedly include coordination efforts with the International Energy Agency. At least three G7 member nations, the United States among them, have already indicated willingness to support a coordinated reserve deployment.
Oil markets have rallied over 25% since hostilities with Iran intensified in early March. Weekend military escalations further amplified price movements as trading resumed Sunday evening.
Israeli forces targeted petroleum storage infrastructure in Tehran on Saturday. Iran’s military responded with drone strikes against a Bahraini oil refinery, the Wall Street Journal reported.
Strait of Hormuz Now Effectively Blocked
Iran has additionally launched operations against vessels transiting the Strait of Hormuz. This critical waterway facilitates roughly 20% of worldwide oil consumption, and current shipping activity through the strait has been reduced to minimal levels.
OCBC Bank analysts noted that “tail risks from a sustained Hormuz stoppage remain in play,” drawing parallels to the magnitude of the 2022 energy crisis triggered by the Russia-Ukraine war.
Jim Reid, a strategist at Deutsche Bank, acknowledged that while the G7 reserve release might provide some relief, “the duration and intensity of the conflict will still be far and away the most important driver” of oil prices.
Both Kuwait and the United Arab Emirates announced plans to reduce oil production over the weekend, following similar moves by Iraq last week. Storage capacity limitations resulting from supply chain disruptions are compelling certain producers to curtail output.
In an unusual development, Saudi Arabia has begun offering crude oil on spot markets, suggesting the kingdom is attempting to compensate for supply shortfalls created by the ongoing conflict.
Trump Warns Prices Will Stay High Short-Term
President Donald Trump addressed the oil price spike Sunday, indicating that while prices would likely continue elevated in the immediate future, they would “drop rapidly” following the resolution of Iranian hostilities.
Trump had earlier minimized concerns about rising gasoline prices domestically, stating to Reuters that the military campaign against Iran took precedence over energy market considerations.
American gasoline futures climbed over 10% Monday, surpassing $3.00 per gallon and approaching their highest levels since mid-2022.
Mohit Kumar, an economist at Jefferies, characterized the strikes on Iranian oil facilities as evidence of “a shift in war strategy,” cautioning that targeting essential infrastructure escalates both humanitarian and economic consequences.
Analysts at OCBC projected that under a moderately severe scenario where partial shipping resumes with military protection, Brent crude could maintain prices near $100 per barrel through the middle of the year.
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