Oil briefly touches $126, its highest price in four years
CNN
By John Liu, Stephanie Yang and Hanna Ziady, CNN
Hong Kong/London (CNN) — Oil briefly surpassed $126 a barrel Thursday, its highest price in four years, as some traders worried about an escalation in the US-Iran war that would keep the Strait of Hormuz effectively shut.
Brent crude, the global benchmark, surged overnight to touch $126.41 a barrel, before falling to $115.8 a barrel, as trading volumes thinned. WTI crude, the US benchmark, fell 0.7% to $106 a barrel.
Brent is still far above the $73-a-barrel level it was trading at before the war, and almost double its price at the start of the year, before tensions between the United States and Iran began ratcheting up.
US average gasoline prices hit a four-year high of $4.30 a gallon on Thursday, according to the latest national average reading from the AAA.
Economists warn that if the disruption to oil supply extends into the second half of the year it could trigger a global recession. Some countries are already suffering from fuel shortages, rising inflation and dampened consumer spending.
High oil prices lead to higher prices for products derived from petroleum such as plastic, synthetic rubber or textiles, as well as rising food prices. The current market shortage is already squeezing supplies of items like medical gloves, instant noodles and cosmetics, particularly in Asia, which imports most of its energy and makes most of the world’s goods.
Oil prices have “nowhere to go but up,” until the permanent reopening of the strait comes into view, said Vandana Hari, founder of energy market analysis firm Vanda Insights. “As of now, how and when that might happen is anybody’s guess,” she added.
Thursday’s price spike was also driven by quirks in oil futures contracts, according to Neil Wilson, a strategist at investment bank Saxo. The widely quoted June futures contract expires today and so trading volume has shifted to the July contract, which was trading above $110 a barrel.
Analysts at Deutsche Bank said the “main catalyst” for the overnight price jump was a report by Axios that the US is considering launching a wave of “short and powerful” strikes on Iran.
Global crude prices have risen for eight straight days, as face-to-face negotiations between the United States and Iran to end the war stalled, keeping the Strait of Hormuz – ordinarily a conduit for around a fifth of global oil and natural gas supplies effectively shut.
“The oil market has moved from… hoping for resolution to fixating squarely on the physical scarcity and long-term threat to supply with the possible escalation of conflict now looming,” Wilson wrote in a note.
Daily oil tanker transits through the Strait of Hormuz have plunged to single digits since the war began in late February, resulting in what the International Energy Agency called the “largest supply disruption in history.”
The possibility of further military action in the Middle East has put traders on alert, said Janiv Shah, vice president of oil markets at Rystad Energy.
“Further escalation and any attacks on energy infrastructure could force (oil price) benchmarks to gain rapidly,” Shah said. Higher oil prices could accelerate a sustained decline in global oil demand, elements of which were already visible, he added.
This story has been updated with additional information.
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