Oil prices came off earlier highs on Monday but were still up more than 15% at levels not seen since mid-2022 as some major producers cut supplies and fears of prolonged shipping disruptions gripped the market due to the expanding US-Israeli war with Iran.
Brent crude futures were up $15.51, or 16.7%, at $108.20 per barrel at 0642 GMT - on track for the biggest-ever jump in a single day, while US West Texas Intermediate (WTI) crude futures were up $14.23, or 15.7%, at $105.13.
Disruptions in tanker movements and rising security risks have already slowed shipping activity, and left Asian buyers reliant on Middle Eastern crude especially vulnerable because the crisis is unfolding around the Strait of Hormuz, through which roughly one-fifth of the world's oil supply passes.
WTI surged 31.4% to a session high of $119.48 a barrel earlier on Monday, while Brent rose as much as 29% to $119.50 a barrel. Before the surge on Monday, Brent had already climbed 27% and WTI by 35.6% last week.
Prices pared gains after the Financial Times reported that the Group of Seven (G7) finance ministers and the International Energy Agency will discuss on Monday a joint emergency oil reserves release, and Saudi Aramco offered prompt crude supply through a series of rare tenders.
Unless oil flows through the Strait of Hormuz resume soon and regional tensions ease, upward pressure on prices is likely to persist," said Vasu Menon, managing director for investment strategy at OCBC in Singapore.
Iraq and Kuwait have begun cutting oil output, adding to earlier liquefied natural gas reductions from Qatar, as the war blocked shipments from the Middle East.
Refinery disruptions continued due to escalating tensions in the region, with Bahrain's BAPCO announcing a force majeure following a recent attack on its refinery complex.
Fujairah Media Office said a fire broke out in the UAE's Fujairah oil industry zone resulting from debris falling, with no injuries reported. Saudi Arabia's Defense Ministry said on X it intercepted a drone heading to the Shaybah oilfield.
Also boosting prices is the appointment of Mojtaba Khamenei to succeed his father Ali Khamenei as Iran's supreme leader, signaling that hardliners remain firmly in charge in Tehran a week into its conflict with the United States and Israel.
"With the appointment of the late leader's son as Iran's new leader, US President Donald Trump's goal of regime change in Iran has become more difficult," said Satoru Yoshida, a commodity analyst with Rakuten Securities.
"That view accelerated buying, as Iran is expected to continue its closure of the Strait of Hormuz and attacks on other oil-producing nations' facilities, as seen last week," he said, predicting WTI could rise to $120 and then $130 a barrel in a relatively short period.
WEEKS OR MONTHS OF HIGHER FUEL PRICES?
The war could leave consumers and businesses worldwide facing weeks or months of higher fuel prices even if the week-old conflict ends quickly, as suppliers grapple with damaged facilities, disrupted logistics and elevated risks to shipping.
"The next flag will be whether it eventually gets to a point where they have to start shutting in oil wells, which not only impacts output even further, it delays a response once the conflict eases as well. That would potentially sustain those prices for much longer," said Daniel Hynes, senior commodity strategist at ANZ.
Iraqi oil production from its main southern oilfields has fallen by 70% to just 1.3 million barrels per day as the country is unable to export oil via the Strait of Hormuz due to the Iran war, three industry sources said on Sunday. Crude storage has reached maximum capacity, said an official with the state-run Basra Oil Company.
Kuwait Petroleum Corporation began cutting oil output on Saturday and declared force majeure on shipments, though it did not say how much production it would shut.
Israel's military has threatened to kill any replacement for the deceased Ali Khamenei, while Trump said the war might only end once Iran's military and rulers had been wiped out.
Meanwhile, as oil prices surged, US Senate Democratic Leader Chuck Schumer called on Trump to release oil from the Strategic Petroleum Reserve.
"President Trump should release oil from the SPR now to stabilize markets, bring prices down, and stop the price shock that American families are already feeling thanks to his reckless war," Schumer said in a statement.
