What To Know
- Brent crude surged through the psychologically important US$100-a-barrel level on Wednesday, September 9, as escalating conflict across the Middle East intensified fears that vital regional oil supplies and shipping routes could face further disruption.
- Hamad Hussain, senior climate and commodities economist at Capital Economics, said markets were increasingly pricing in both a prolonged conflict and the possibility of military strikes disrupting Middle Eastern oil flows.
Brent crude surged through the psychologically important US$100-a-barrel level on Wednesday, September 9, as escalating conflict across the Middle East intensified fears that vital regional oil supplies and shipping routes could face further disruption.
Image Credit: Bangkok Business News
The international benchmark briefly touched US$100.19, its highest level in more than six weeks, before trading at US$99.93, up US$2.01, or 2.05%, by 0802 GMT. US West Texas Intermediate crude rose US$1.49, or 1.60%, to US$94.52 a barrel. The renewed rally, this Bangkok Business News report notes, reflects growing concern that geopolitical tensions are developing into a more persistent threat to global energy supplies.
Oil Markets Price in Greater Risk
Brent crossed US$100 for the first time since July 24, extending a rally that has lifted prices by roughly 25% since early August. Expectations that the six-month US-Iran conflict could reach a lasting resolution have weakened considerably.
The benchmark has already demonstrated how sharply prices can react to the crisis. Since fighting began on February 28, Brent has traded as high as US$126.41, a level reached on April 30.
Fresh pressure emerged following attacks by Iran-backed Houthis on Saudi energy facilities, with fires reported at oil installations. The strikes heightened fears that the conflict could spread further and threaten production and transportation infrastructure.
Hormuz and Red Sea Routes Under Pressure
Attention is increasingly focused on the Strait of Hormuz and the Red Sea, two strategically important routes for energy shipments. Oil flows through Hormuz have already fallen sharply during the conflict, while attacks have increased concerns surrounding alternative shipping routes.
Rystad Energy Chief Economist Claudio Galimberti estimated that between 8 million and 9 million barrels per day passed through Hormuz during the week before fighting resumed on August 30. More recently, flows reportedly dropped below 2 million barrels per day.
Hamad Hussain, senior climate and commodities economist at Capital Economics, said markets were increasingly pricing in both a prolonged conflict and the possibility of military strikes disrupting Middle Eastern oil flows.
Banks Raise Oil Price Forecasts
The growing supply threat has prompted Goldman Sachs, Bank of America and HSBC to raise crude-price forecasts. Jeffrey Currie, co-chairman at Abaxx Markets, has meanwhile argued that higher energy prices may represent a structural “security premium” rather than a temporary shock.
Although increased production from non-OPEC suppliers including the United States, Canada and Guyana provides some additional supply, the International Energy Agency has forecast global oil output falling by 4.3 million barrels per day this year.
With major shipping arteries under pressure and regional infrastructure increasingly exposed, sustained Brent prices around or above US$100 could have wider consequences for inflation, transportation costs and economic growth. Much will now depend on whether Middle East tensions stabilize or place additional oil production and maritime trade at risk.
