Oil could top $100 as Strait of Hormuz closure halts flows

Oil prices could exceed $100 per barrel if tanker traffic through the Strait of Hormuz is not swiftly restored, as the waterway’s closure threatens to disrupt 15 per cent of global oil supply and 20 per cent of global LNG supply, consultancy Wood Mackenzie said.

Following US and Israeli attacks on Iranian government, military and nuclear facilities, Iran warned shipping away from the strait and insurers withdrew coverage, effectively halting tanker movements.

The disruption, Wood Mackenzie said, creates a dual supply shock. Current exports through the strait are suspended, while additional OPEC+ volumes and most of OPEC’s spare capacity — typically used to balance the global oil market — are inaccessible as long as the waterway remains closed.Global oil prices rose after at least three ships were attacked near the Strait of Hormuz. Brent crude was up more than 8 per cent at $78.72 a barrel, while US-traded oil was up by around 7.6 per cent at $72.20.

“The key question is when vessels re-establish export flows,” said Alan Gelder, senior vice president of refining, chemicals and oil markets at Wood Mackenzie. While tanker rates and insurance costs are set to surge, he said those increases would represent only a fraction of the price impact if oil flows are curtailed for more than a few days.In the most optimistic scenario, export flows could take weeks to resume, he added.

Oil prices are “heavily risked to the upside” during that period. Gelder cited the early stages of the Russia-Ukraine conflict, when fears over Russian supply losses drove prices above $125 per barrel.

“In the current scenario, oil prices above $100 per barrel are possible if transit flows are not re-established quickly,” he said.