Brent crude, the global oil benchmark, is on track for its largest monthly increase since its futures were introduced in 1988. As of March, Brent has surged 59%, trading above $115 per barrel, driven by a dramatic supply shock triggered by the escalating conflict involving the US, Israel, and Iran.
Strait of Hormuz Disruption Reshapes Oil Flows
The crisis has effectively closed the Strait of Hormuz, a vital channel that carries 20% of global oil and LNG. The threat of attacks on passing tankers, confirmed by a drone strike on a vessel near Dubai, has disrupted the movement of an estimated 300 million barrels—the equivalent of nearly three days of global oil consumption.
Refining and Production Capacity Severely Hit
This disruption has forced Gulf countries to shut down 10 million barrels of daily oil production. Simultaneously, 2 million barrels per day of Middle Eastern refining capacity has gone offline. Asian refineries, heavily dependent on Middle Eastern crude, have scaled back operations by 2 to 2.5 million barrels per day, intensifying the global supply shortage.
Market Reactions and Price Forecasts
The current May contract for Brent crude sits at $115, while the June contract, already up nearly 50%, trades at $108 per barrel. West Texas Intermediate (WTI) has also seen a 55% surge, marking its sharpest monthly rise since 2020’s pandemic shock.
Refined product prices have spiked even more dramatically. Jet fuel and diesel prices have nearly doubled since January. Meanwhile, the US average gasoline price has exceeded $4 per gallon—a politically sensitive threshold not seen since the 2022 energy crisis following Russia’s invasion of Ukraine.
Strategic Reserves Fail to Contain Prices
Despite the release of 400 million barrels from strategic reserves, analysts like PVM’s Tamas Varga note that these efforts have had limited effect. Additionally, easing sanctions on Russian and Iranian oil has not mitigated supply concerns.
Looking Ahead: High Prices Likely to Persist
According to Morgan Stanley, Brent crude is expected to average $110 per barrel from April to June, and $100 from July to September. Analysts suggest current prices may still underestimate the true scale of disruption. With global demand steady and limited alternatives available, energy prices could climb even higher in the coming months.