Oil prices breached the $95 per barrel mark on Wednesday for the first time in six weeks, driven by escalating Middle East conflict that threatens further disruption to global supplies. Brent crude peaked at $95.24 before easing to $94.40 by lunchtime, up more than 3% from the previous day, as renewed US-Iran aggression in the Strait of Hormuz was compounded by Houthi threats to target vessels carrying Saudi oil through the Bab el-Mandeb strait.
Conflict reignites after brief ceasefire
The price surge followed an 11th night of US strikes on Iran, targeting aircraft hangars and drone storage sites, despite diplomatic efforts to salvage an interim ceasefire deal. President Donald Trump said strikes would intensify in a war that has so far cost the US $37.5 billion (£28 billion). The jump in crude prices this month marks the fastest increase since US-Israeli attacks on Tehran first disrupted flows of Gulf exports via Hormuz in March.
Analysts warn of $120 oil by year-end
According to analysts at Goldman Sachs, the market is on track for oil prices of $120 per barrel by the end of the year unless exports via the Strait of Hormuz restart. Fatih Birol, head of the International Energy Agency (IEA), said on Tuesday that global oil markets had so far benefited from “cushioning factors” but warned against complacency amid the escalation in hostilities.
These factors include the release of about 400 million barrels of emergency oil and oil products held by IEA members, as well as efforts by Saudi Arabia and the United Arab Emirates to continue exporting crude via alternative routes. Additionally, oil-producing countries in Europe and the Americas have increased exports, while major importers like China have cut purchases from the global market.
Refinery production cuts exacerbate fuel concerns
The slowdown in oil buying has led many refineries to cut production, raising supply concerns for fuels and chemicals. Birol noted that even as Gulf crude exports increased during the ill-fated US-Iran ceasefire, production of road fuels remained weak. “Refinery activity and product supplies have not picked up as much as crude deliveries, meaning that markets for refined oil products, including diesel and gasoline, are considerably tighter than those for crude,” he said.
Gas supply tightens ahead of winter
While increased gas exports from the US and Canada offset about 70% of lost Gulf gas supply via the Strait of Hormuz, availability is expected to remain tight as winter approaches and European buyers refill depleted storage facilities. Birol stressed that a “resolution to the ongoing conflict that includes a full and unconditional reopening of the Strait of Hormuz” is essential to avoid “a further deterioration in global energy security”.
Equinor profits double amid price surge
Norway’s state oil company, Equinor, reported on Wednesday that its profits nearly doubled to $11.5 billion in the second quarter, driven by higher oil and gas prices resulting from the war against Iran. Meanwhile, Trump threatened to destroy a bridge or power plant each time Iran targets a ship in the Strait of Hormuz. Iran has responded to US attacks by targeting energy infrastructure and desalination plants in neighbouring Gulf countries, which the UN secretary general, António Guterres, described as unacceptable on Tuesday. International law generally prohibits such attacks unless the infrastructure is used for military purposes.
