Seventh day of Middle East conflict: Hormuz Strait "nearly paralyzed", US oil surged 17%, natural gas soared 9%.
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The ongoing escalation of warfare in the Middle East is causing the most intense shock to the global energy market in years.
CCTV News reports that on Friday, March 6, U.S. and Israeli military strikes against Iran entered their seventh day. Iran claims it is prepared for a long-term war and is developing new weapons.
The continued escalation in the Middle East pushed Brent crude up 12% intraday, quoting $94.41 per barrel. WTI crude surged over 17%, quoting $92.37 per barrel.
NYMEX natural gas futures also rose, jumping to 9% intraday, quoted at $3.274 per million British thermal units.
Commercial shipping issues in the Strait of Hormuz have become the core driving force of this round of activity. Citi estimates that a disruption in the Strait of Hormuz could lead to a daily global crude oil supply loss of 7 to 11 million barrels. Qatar's Energy Minister warns that if shipping disruptions continue, oil prices could soar to $150 per barrel in two to three weeks.
Hormuz nearly locked down, supply gap rapidly widening
The Strait of Hormuz is a vital channel connecting the Persian Gulf to global markets, normally carrying about one-fifth of the world's oil flows. Last year, an average of about 20 million barrels of crude oil and petroleum products passed through daily.
According to reports, several national maritime information centers have issued notices stating that commercial passage through the strait is "nearly completely halted," citing security threats, insurance constraints, operational uncertainty, and actual disruptions.
Reports say Kuwait has begun curtailing some oil field production due to storage facilities being full, marking the latest sign of supply damage in the Middle East.
Meanwhile, Saudi Arabia diverted millions of barrels of crude oil to Red Sea ports to avoid risks in the Strait of Hormuz, and raised April prices for main oil grades sold to Asian buyers by the largest margin since August 2022.
As the situation spreads, oil-producing countries are being forced to make emergency responses. Saudi Arabia sharply raised prices for its main oil grades sold to Asia for April, the largest increase since August 2022, and diverted millions of barrels of crude oil to Red Sea ports to avoid the risks in the Strait of Hormuz.
Regarding nearby price spreads, the Brent crude price spread between the two nearest contracts has widened to a premium of $5.76 per barrel, compared to only 58 cents a month ago, indicating extremely tight spot market supply.
In Asia, supply pressures have transmitted to major consuming countries. Japanese refiners have applied to the government to use strategic oil reserves. Reports say the Japanese government is evaluating the possibility of tapping strategic reserves but has not taken action yet. Market participants speculate that coordinated emergency stockpile releases by multiple countries would maximize market stability.
Goldman warns of $100 oil, European oil products post record gains
As the situation continues to worsen, Wall Street institutions have started pricing in extreme scenarios. Samantha Dart, Co-Head of Commodities Research at Goldman Sachs, said in a media interview:
If a low-flow state in Hormuz persists for about five more weeks, Brent crude prices breaking $100 per barrel is possible.
However, Goldman’s base scenario still forecasts the strait’s transportation will gradually recover, and expects Brent crude’s average price in the second quarter to fall back to $76 per barrel.
Qatar’s Energy Minister, meanwhile, gave a stronger warning in an interview with the UK’s Financial Times, saying that if oil tankers and merchant ships continue to be unable to pass Hormuz, oil prices may climb to $150 per barrel in two to three weeks.
On Thursday, U.S. gasoline retail prices rose to $3.32 per gallon, the highest level in 2024. ICE Europe’s low-sulfur diesel futures rose more than 50% for the week, marking the largest weekly gain ever recorded.
Qatar LNG facility closes, natural gas markets under pressure
The liquefied natural gas market is also directly impacted.
Earlier this week, following an Iranian drone strike, Qatar shut down its LNG export facility in Ras Laffan, the world’s largest LNG export hub.
According to Bloomberg’s ship-tracking data and informed traders, at least two LNG carriers long-term chartered by QatarEnergy, Al Thumama and Mesaieed, are now leased out to external markets and currently near the West African coast.
Supply-side pressures are mounting, leading the EU to reconsider its ban on Russian gas imports.
Wallstreetcn mentions that Norwegian Energy Minister Terje Aasland said at a meeting in Oslo on March 3, The EU has always made it clear that it wants to break free from reliance on Russian oil and gas, but events in the past three or four days have made the situation difficult. Given the current geopolitical circumstances, he believes related discussions will resume.
According to Xinhua's earlier report, on January 26 this year, all 27 EU member states formally passed regulations to gradually ban imports of pipeline and liquefied natural gas from Russia.
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