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US Crude Posts Record Weekly Gain as Iran War Rages
Disrupted Shipping and Rising Security Risk Drive Prices Near $91 a Barrel
Key Takeaways:
- U.S. oil prices logged their biggest weekly gain on record as the war in Iran halted most shipping through the Strait of Hormuz and drove WTI near $91 a barrel.
- The disruption has removed an estimated 7 million to 11 million barrels a day from the market, tightened storage capacity and pushed diesel futures up more than 50%.
- Governments signaled potential intervention, but with hostilities ongoing, analysts warned prices could top $100 a barrel.
U.S. oil posted the biggest weekly gain on record as the war in Iran upends critical energy market flows, with shipping through the Strait of Hormuz at a near-total halt.
West Texas Intermediate added 12% on March 6 to settle just below $91 a barrel, the largest daily jump in almost six years, while Brent closed near $93 a barrel. Iran warned that the European Union is a “legitimate” target if it joins the war, adding to bullish momentum.
RELATED: Diesel Costs Forecast to Keep Rising on Middle East Turmoil
The Wall Street Journal reported that Kuwait has begun cutting production at some oil fields after running out of places to store bottled-up crude, the latest sign of a hit to regional output. Citigroup Inc. estimates that the oil market is losing 7 million to 11 million barrels of daily supply due to the disruption through Hormuz.
Crude surged even after President Donald Trump signaled “imminent action” to reduce pressure on prices, while National Economic Council Director Kevin Hassett denied that the White House would tap the Strategic Petroleum Reserve, a cache of crude held in vast underground caverns, anytime soon.
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RELATED: White House Assesses All Options to Ease Oil Spike
“We’ve got a whole flow chart of tools to use,” Hassett said during a Bloomberg Television interview.
So far, the Treasury Department has eased curbs on India’s ability to buy Russian oil and the U.S. International Development Finance Corp. announced a $20 billion plan for maritime reinsurance, including war risk, in the Gulf region.
Japan was also reportedly considering tapping national reserves. No action has yet been taken, though market participants are speculating that a coordinated release from multiple nations’ emergency oil inventories could be enacted to maximize impact.
Still, with no sign of a let-up in hostilities, Goldman Sachs Group flagged the risk of scenarios for oil topping $100 a barrel in the case of prolonged disruption. European diesel futures headed for a weekly gain of more than 50%, and central banks signaled unease about a possible resurgence in inflation.
There has been a “near-total” pause in commercial traffic through Hormuz, according to the Joint Maritime Information Center, a multinational naval advisory group. The collapse stems from “security threats, insurance constraints, operational uncertainty and effective disruptions.”
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Some shippers are bookingvessels to transport oil from the U.S. Gulf Coast to Asia as costs soar for the massive tankers typically used on those routes. Meanwhile, only nine empty VLCCs remainto store crude from major Middle East producers. Once those are filled, onshore storage tanks will fill rapidly.
Oil markets have been rocked by the conflict, which has ensnared about a dozen nations since the U.S. and Israel launched their campaign on Feb. 28. As the fighting intensified, not only has shipping through theall but ended, but some producers are starting to curb output. Refineries and tankers have also been hit.
