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HOUSTON - On Thursday, April 2, US oil prices rose by more than 11 percent, while Brent crude experienced a nearly 8 percent increase during a day of turbulent trading. Traders are increasingly concerned about potential long-term interruptions in oil supply following President Donald Trump's announcement that the US would intensify military actions against Iran.
Brent crude futures closed at US$109.03 per barrel, marking a rise of US$7.87 (7.78 percent). Meanwhile, US West Texas Intermediate (WTI) crude futures increased by US$11.42 (11.41 percent), settling at US$111.54 per barrel, achieving the largest absolute price increase since 2020.
Despite these gains, both benchmarks remain below the nearly US$120 per barrel highs reached earlier in the conflict.
Trump indicated that military operations would escalate but refrained from providing a timeline for concluding hostilities or any details regarding the potential reopening of the Strait of Hormuz.
"We're going to hit them extremely hard over the next two to three weeks," Trump stated, adding, "We're going to bring them back to the Stone Ages, where they belong."
In response to the situation, Iran is reportedly developing a protocol with Oman to monitor traffic in the Strait of Hormuz, as announced by an Iranian foreign ministry official, following a Bloomberg report.
Iran has effectively blocked access to the vital waterway through which 20% of global oil and liquefied natural gas is transported, in retaliation for US-Israeli strikes that began on February 28. The reopening of this key route has become critical for governments worldwide as energy prices escalate.
"The real question on traders' minds is whether Iran's oil infrastructure is now at risk. With increased damage likely in the area, even if it remains intact, the resumption of oil flows in the region appears to be further delayed," commented Dennis Kissler, senior vice president of trading at BOK Financial.
Typically, WTI trades below Brent, but it was priced nearly US$3 higher than Brent due to the May delivery for the US contract, while Brent was trading for June deliveries. This premium for WTI over the global benchmark reached a one-year high.
"The market expects that if the Strait of Hormuz reopens in a couple of weeks, this risk premium will immediately decline," said John Kilduff, a partner at Again Capital.
On Thursday, Lorie Logan, President of the Federal Reserve Bank of Dallas, indicated that a swift resolution to the war could lead to a moderate economic impact, although the overall economic outlook remains uncertain due to the ongoing crisis. Logan noted that the US has some buffers against the war's effects.
Citi projected that Brent crude prices could average US$95 per barrel in a base case scenario and US$130 per barrel in a bullish case in the latter half of the year. JP Morgan also suggested that oil prices could rise to between US$120 and US$130 per barrel in the short term, with potential increases above US$150 if the Strait remains closed into mid-May.
According to energy services firm Baker Hughes, US oil rigs, an indicator of future output, increased by two to a total of 411 this week. Rising prices for future oil deliveries are prompting producers to consider adding more rigs, although they have expressed a desire for sustained higher prices before making such commitments.
The front-month WTI recorded its largest-ever premium over the second-month and seventh-month contracts on Thursday.
Discussions on Reopening Hormuz
Britain is set to host a virtual meeting with around 40 countries to explore options for reopening the Strait of Hormuz, although the United States is not expected to participate.
Meanwhile, OPEC+ is anticipated to consider a further increase in oil output on Sunday, according to sources. This move would position members to add more barrels if the Strait of Hormuz reopens but is unlikely to result in a significant supply increase beforehand.
In Russia, strikes on port infrastructure, pipelines, and refineries in Ukraine have reportedly reduced export capabilities by one million barrels per day, approximately 20 percent of total capacity, which could lead to imminent production cuts.
The head of the International Energy Agency has also warned that supply disruptions will start to impact Europe's economy in April, following a period where the region was insulated by cargoes contracted before the onset of the war.
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