Oil prices have reached $100 a barrel following US strikes on Iran, raising concerns about the energy market's stability. Experts warn that the situation may be beyond a 'point of no return' despite hopes for a diplomatic resolution.
Key points
Oil prices reached $100 a barrel after US strikes on Iran
The conflict has disrupted oil exports through the strait of Hormuz
Prices are significantly higher than prewar levels
Demand for transport fuels is expected to increase this summer
Mentioned in this story
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Brent crude
Oil has again touched $100 a barrel after fresh US strikes on Iran dashed hopes of a Middle East breakthrough, with experts saying that whatever the outcome of peace talks the global energy market may now be past the “point of no return”.
News of the US attacks on missile launch sites and mine-laying vessels pushed the price of Brent crude past the key threshold on Tuesday, before it later eased back to about $99.
The conflict and resulting blockade of fossil fuel shipping through the strait of Hormuz have sent oil soaring, topping $126 at the end of last month and still about 38% higher than prewar levels.
However, in recent weeks prices have remained significantly below predictions as traders continued to bet on a diplomatic solution to hostilities that could allow Gulf states to restart production and exports of crude.
Market observers say weeks of disruption to oil exports have heavily eroded global stockpiles of crude and fuel, while and demand for transport fuels is expected to increase over the summer travel season.
Analysts at HFI Research said last week that the market had “reached the point of no return” and could be due a “rude awakening” by the start of next month.
“It just seems to be this endless loop of Charlie Brown and Lucy with the football,” said Michael Every, global strategist for economics and markets at Dutch lender Rabobank.“Every single time, it’s ‘Oh, this time is the breakthrough. This time, the energy will flow.’ And at any one given time, it could be right. But so far, repeatedly, it hasn’t been.”
The head of the International Energy Agency, Fatih Birol, said last week that the world could hit a “red zone” in July and August by using far more oil than countries were producing, meaning further emergency measures may be required.
Oil prices surged to $100 a barrel due to recent US strikes on Iran, which raised tensions in the Middle East and disrupted oil exports.
How have US strikes on Iran affected the global energy market?
The US strikes have led to fears of prolonged conflict and a blockade of fossil fuel shipping, pushing oil prices higher and impacting global stockpiles.
What are the predictions for oil prices in the coming months?
While prices have recently stabilized below predictions, increasing demand for transport fuels during the summer travel season may drive prices up further.
What is the significance of the 'point of no return' in the energy market?
Experts suggest that the energy market may be past the 'point of no return,' indicating that ongoing disruptions could lead to long-term instability in oil supply and prices.
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That same day, Saudi Aramco, the state-controlled oil firm, predicted that if the strait of Hormuz remained closed for further weeks, “oil supply challenges” would affect the market until next year.
The shutdown of the channel, which allowed for the transport of about 20m barrels of oil a day before the crisis, has cut 14.4m barrels of oil a day from the Gulf’s prewar output.
Record draws from emergency oil stockpiles have helped to plug this shortfall by around 2m barrels a day but these releases are expected to end by July and inventories are already “critically low”, according to US investment bank JP Morgan.
The bank said global oil demand fell by an average of 2.8m barrels a day in March, and that deeper declines of 4.3m barrels a day in April and 5.5m barrels a day in May were likely. Despite the sharp cuts to demand there remains a substantial shortfall in crude supplies to the market.
“The market continues to watch for a US-Iran agreement to resume flows through the strait, but even in a blue-sky scenario, with flows normalising, the market will remain tight with inventories critically low,” JP Morgan said.
In Europe, gas reserves are also under pressure, HSBC said, with stores currently only 37% full, well below the five-year average of about 50% for this time of year. Injections of gas into storage facilities are also well below normal levels, in part because the market price is not reflecting the market’s tight supplies.
“In our view, this seems to reflect market complacency, to some degree,” HSBC said. “The consequence of this will likely result in accelerated storage injections during the back end of the summer months and with it heightened price volatility.”
Higher oil prices are already feeding through at the pumps. In the UK, petrol prices are at their highest level since the Middle East conflict started, the RAC said on Tuesday, with the average price now 159.43p, 26.6p more than on 28 February, when the war began.
On Wednesday, the cap on typical dual-fuel costs in Great Britain is forecast to increase by nearly 13% as a result of higher gas prices caused by the Hormuz blockade, which could cost the average household an extra £209 a year.
