Oil prices surged on Friday, with April WTI crude oil closing up by 3.11% and April RBOB gasoline up by 2.59%. The rally came amidst news that the US is deploying a Marine expeditionary unit to the Middle East as Iran escalates attacks on the vital shipping route of the Strait of Hormuz. Reports of Iran laying mines in the strait added to the tensions, causing a sharp uptick in prices.
Earlier in the day, prices dipped briefly after the US Treasury granted a waiver allowing the import of Russian oil loaded before Thursday. Additionally, talks between France, Italy, and Iran about safe passage through the strait put pressure on prices. The strengthening of the dollar index to a 3.5-month high also weighed on crude prices.
The situation in the Middle East intensified on Monday when Israel bombed 30 Iranian oil depots, sending crude prices soaring to a 3.75-year high of $119.48. However, prices have since retreated to a range between $90 and $100 per barrel. The closure of the Strait of Hormuz has forced Persian Gulf oil producers to cut production by 6%, with Iraq and Oman among the countries impacted by the disruptions.
President Trump has outlined plans for US military escorts through the strait, but actual implementation may not happen until the end of the month, according to Energy Secretary Wright. The potential for prolonged disruptions in the strait, responsible for a fifth of global oil shipments, has raised concerns of prices exceeding the 2008 record high of nearly $150 a barrel, as warned by Goldman Sachs.
On the supply side, OPEC+ plans to increase crude output by 206,000 barrels per day in April, aiming to restore the production cuts made in early 2024. However, with the ongoing conflicts in the Middle East affecting production, the actual hike may be delayed. Mounting supplies of Russian and Iranian crude in floating storage are also contributing to bearish sentiment in the market.
The Russia-Ukraine war continues to impact the oil market, with Ukrainian attacks targeting Russian refineries and tankers, reducing global oil supplies. Sanctions imposed by the US and EU on Russian oil companies further restrict exports, supporting higher oil prices. Additionally, the recent EIA report showed an increase in crude stockpiles, while US oil rig counts remained relatively stable.
As tensions persist in key oil-producing regions and supply disruptions continue, the outlook for oil prices remains uncertain. Traders and investors are closely monitoring geopolitical developments and supply dynamics to gauge the future direction of crude oil prices.
