Key facts
- Oil prices are rising as hopes for a US-Iran deal fade.
- The Strait of Hormuz, which handled 20% of global oil flows before the war, remains closed.
- US Strategic Petroleum Reserve stocks have fallen to their lowest levels in 43 years.
- Experts warn of potential price spikes due to low global oil reserves.
- Brent crude briefly surpassed $90 a barrel, and US oil topped $83.
Oil prices are experiencing an upward trend as optimism for a US-Iran deal diminishes, with experts suggesting the Strait of Hormuz may remain closed, impacting global supply. Brent crude rose 1% to briefly exceed $90 a barrel, while US oil prices also climbed 1% to over $83.
Analysts point to the prolonged closure of the Strait of Hormuz, a critical chokepoint for 20% of the world's oil flows, as a primary driver for rising prices. Iran has indicated the Strait will stay shut until its demands are met or President Donald Trump's term concludes in 2029. Trump, in turn, has stated he would seek reparations from Iran, leading investors to discount a near-term resolution.
Concerns are mounting over critically low global oil reserves, particularly in the US Strategic Petroleum Reserve, which has fallen to a 43-year low. Economist Tuomas Malinen warned that without price manipulation through SPR releases, crude prices could reach $150 to $200, potentially triggering severe demand destruction, a stock market crash, and a rapid US recession.
Research firm HFI Research presented scenarios where either Iran gains control of the Strait or the US escalates conflict, both predicted to result in extremely elevated oil prices, potentially surpassing Brent's 2008 peak of $150 a barrel. Helima Croft of RBC Capital Markets highlighted additional supply pressures from Ukraine's attacks on Russian energy infrastructure and warned of a potential bidding war for US energy cargoes among America, Europe, and Asia.
Francisco Blanch, head of commodities at Bank of America, anticipates further price increases if traffic through the Strait of Hormuz does not significantly improve, emphasizing the need for a substantial increase in ship flow to stabilize prices and prevent escalation.