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Oil prices soared on Monday, reaching their highest levels since January, as the U.S. joined Israel in launching attacks on Iran’s nuclear facilities, stoking fears of supply disruptions in the Middle East.
- Brent crude futures rose by $1.92, or 2.49%, to $78.93 a barrel at 0117 GMT.
- U.S. West Texas Intermediate (WTI) crude climbed $1.89, or 2.56%, to $75.73 a barrel.
Early Session Volatility
- Both contracts initially surged by over 3%, reaching $81.40 for Brent and $78.40 for WTI, marking five-month highs before pulling back slightly.
Geopolitical Tensions Drive Price Gains
- The surge in oil prices was driven by U.S. President Donald Trump’s announcement that U.S. forces had “obliterated” Iran’s key nuclear sites, marking a significant escalation in the ongoing Israel-Iran conflict.
- Iran, OPEC’s third-largest crude producer, has vowed to retaliate, further exacerbating concerns over oil supply disruptions.
- The Strait of Hormuz, through which approximately a fifth of global crude flows, remains a key point of focus, with fears mounting that Iran may attempt to close the waterway in retaliation. While Iran has previously threatened to block the strait, it has never followed through.
Market Expectations
- Analysts anticipate further price increases, driven by the growing risk of disruption in oil infrastructure and transportation, especially if the Strait of Hormuz becomes inaccessible.
- Goldman Sachs warned that Brent crude could temporarily peak at $110 per barrel if oil flows through the strait were halved for a month, with prices remaining down by 10% for the following 11 months.
Risk Premium and Long Positions
- While the current geopolitical risk premium is pushing prices higher, analysts note that tangible supply disruptions are needed to sustain these price levels.
- Analysts also highlighted that the unwinding of long positions accumulated during recent price rallies could act as a cap on oil price gains in the short term.
Price Movement Since June 13
- Since the conflict began on June 13, Brent crude has risen by 13%, while WTI crude has gained 10%.
In conclusion, while geopolitical tensions have significantly impacted oil prices, analysts caution that the current rally may face challenges unless there are concrete disruptions to oil supply in the coming weeks.
