Brent Tops $100 Again as Middle East Conflict Widens
The U.S. dollar strengthened against most Asian currencies
- Oil prices climbed in Asia amid widening Middle East conflict, stoking fears of supply disruptions.
- Two foreign tankers were ablaze in Iraqi waters and Iran targeted fuel tanks in Bahrain, escalating Middle East conflict.
- The International Energy Agency will release 400 million barrels from emergency stocks, but the market perceives it as insufficient.
Oil climbed and Asian equities fell Thursday as the widening Middle East conflict continued to stoke fears of supply disruptions.
Front-month Brent crude oil futures topped $100 a barrel again, last up 9.2% at $100.52 a barrel. Front-month West Texas Intermediate crude oil futures rose 8.6% to $94.80 a barrel.
Two foreign tankers carrying Iraqi fuel oil were ablaze in Iraqi waters after being hit by projectiles, The Wall Street Journal reported, citing port officials. Bahrain’s interior ministry said Iran targeted fuel tanks at a facility in Muharraq governorate.
Meanwhile, the Islamic Revolutionary Guard Corps struck three cargo ships attempting to transit the Strait of Hormuz on Wednesday.
Escalating Iranian attacks and the U.S. government’s decision to hold off on military escorts for oil tankers through the key waterway are dimming hopes for the quick revival of traffic through the strait.
“The current disruption to global oil markets is unprecedented from two dimensions—the extent of supply sidelined and the lack of spare capacity,” said Vivek Dhar, head of commodities and sustainable economics at Commonwealth Bank of Australia.
“Our expectation that this crisis could last for months instead of weeks likely means that markets are underestimating the disruption to global energy markets,” Dhar added.
Crude oil prices rose even after the International Energy Agency said Wednesday its member countries would release 400 million barrels of oil from their emergency stocks—the largest reserves release in history—in an effort to lower prices.
The planned IEA release is seen as insufficient to offset the virtual halt of oil flows through the Strait of Hormuz and compensate for production shutdowns in the Persian Gulf and crude storage shortages.
“There are concerns about the speed at which this oil will reach the market and whether it will be enough to tie up the market until we see oil flowing through the Strait of Hormuz again,” said ING’s commodities strategy team.
Goldman Sachs now expects a 21-day disruption to oil flows through the Strait of Hormuz, up from 10 days previously, and warns daily oil prices could exceed the 2008 peak if flows remain depressed through March.
Asian equities fell as oil prices climbed. South Korea’s Kospi dropped 1.2% and Japan’s Nikkei Stock Average slumped 2.1%. Hong Kong’s Hang Seng Index fell 1.3%. China’s Shanghai Composite Index was more resilient, down 0.6%, given the country’s lower exposure to the oil price shock.