The Jag Vasant vessel transferring LPG is seen near a port in Mumbai after transiting the Strait of Hormuz amid supply disruptions linked to the U.S-Israeli war with Iran, April 1.Francis Mascarenhas/Reuters
Oil prices rose more than $11 on Thursday as the market reacted to President Donald Trump’s remarks that the U.S. will intensify its attacks on Iran, but may withdraw before gaining control of the vital Strait of Hormuz.
With vessels that had already traversed the strait before the war reaching their destinations, the supply crunch is set to further squeeze countries - largely in Asia - that rely on oil from the region.
Canada will escape the worst of the growing energy crisis, but given its large volume of crude production, it won’t be spared completely – and consumers are already feeling the pinch, with gasoline prices in some regions topping $2 a litre.
“We are not an island. We are connected to the global market,” said Susan Bell, senior vice-president of commodity markets - oil, with Rystad Energy.
Opinion: Trump has no Plan B in Iran. He never had much of a Plan A
Because Canadian crude is fully exposed to global benchmark oil prices, refiners will have to increase what they charge for their products to recoup the higher costs they’re incurring.
“So yes, absolutely, we are going to see prices increase,” she said.
Benchmark oil prices for Brent and West Texas Intermediate have surged since the war on Iran started. With the Strait of Hormuz essentially closed by Tehran, as much as 20 per cent of the world’s oil supplies have been cut off from the market. Brent crude has climbed 49 per cent since before the bombardments began. It closed the session up 8 per cent at US$109.03 a barrel on Thursday. WTI for May delivery jumped 11 per cent to settle at US$111.54 a barrel, its biggest absolute price rise since 2020. It has climbed by two-thirds since Feb. 27.
J.P. Morgan said in a note Thursday that oil prices could spike to between US$120 and US$130 a barrel in the near term, with a risk of surging above US$150 if access to the Strait of Hormuz remains disrupted into mid-May.
The bank’s base-case assumption is that the disruption will ultimately be resolved through negotiations following a period of supply strain and inventory drawdowns.
It also warned that the size and duration of any price spike would be key in determining the severity of the broader macroeconomic shock, raising the risk of depressed demand and a potential recession if high prices persist.
The narrow waterway in the Persian Gulf is a key chokepoint. With the war in its fifth week, the main customers for Gulf oil and LNG supplies – largely Asian countries – are dealing with shortages of crude, as well as products that power their economies like diesel and jet fuel. Some, such as Thailand, Philippines and South Korea, have instituted emergency measures, including four-day work weeks, work-from-home requests and fuel rationing.
Rystad’s current assumption is that the strait will reopen mid-April.
Why the Strait of Hormuz has been a global commerce chokepoint for centuries
But the inability to export from the region has sent traders scrambling to find alternative supplies, and in his speech on Wednesday, Mr. Trump recommended countries that normally rely on Gulf oil buy more from the United States.
WTI shot up as a result, pushing it above Brent – though the two benchmarks are based on different months right now, so it’s not an apples-to-apples comparison. (The prompt Brent futures contract is for June, while WTI is still priced for May delivery.)
“That makes it look like the spread is collapsing more than it is,” said Randy Ollenberger, who leads BMO Capital Markets’ coverage of the North American oil and gas industry.
Still, with inventories of crude in Cushing, Oklahoma, expected to come down quite a bit over the next two months, he said, the resulting supply crunch could narrow the WTI-Brent differential.
Analysis: Artemis II and Iran: Two strikingly different missions define the U.S.
Mr. Ollenberger said although prices are high, they’re still lower than expected considering how much oil has physically been taken off the market.
“Oil that is showing up in the U.S. Gulf Coast today or last week left the Persian Gulf before the war started,” he said. “If you fast forward another week, all of a sudden there’s no tankers – and there won’t be any more tankers coming, because the Persian Gulf has been shut down for over a month now.”
When those physical shortages hit, he expects prices to move “substantially higher from where they are today.”
The war that began on Feb. 28 has led to the largest energy supply shock on record, noted an economic outlook from S&P Global released this week.
“With ships reaching their destinations, the crisis has entered the supply shortage phase,” during which producers or those with reserves become critical.
While the situation in the Gulf remains “extremely fluid and unpredictable,” the agency assumes that elevated hostilities will persist further into April.
“We see benchmark oil prices averaging above US$100 per barrel through April while volatility remains elevated and markets remain jittery,” it wrote.
“After that period, a process of normalization begins and the negative impact on growth begins to recede. As we go through the year, energy flows and markets return to a more normal state.”
An analysis from Wood Mackenzie, released Thursday, said the shortages affecting Asia are just “the thin end of the wedge,” and are set to ripple into Europe and even the U.S.
Meanwhile, Rystad’s chief oil analyst Paola Rodriguez-Masiu underscored the severely strained oil supplies “with refiners fighting over the same barrels that have now skyrocketed in value.”
While nothing appears structurally broken for refiners on paper when it comes to their margins, the reality on the ground ”shows a panicked Asian refining market desperate for additional barrels," where West African crude grades are being offered at eye-watering prices, Ms. Rodriguez-Masiu said.
With a report from Reuters