Oil prices continued their upward trend, marking a third day of gains, as tensions between the United States and Iran intensified. Global benchmark Brent crude approached $86 per barrel after an 11% increase in the previous two trading sessions. This spike followed statements from President Donald Trump, who threatened further strikes on Iran, potentially targeting power plants and bridges, unless Tehran agreed to negotiations. This rhetoric came hours after the US reimposed a blockade on Iranian shipping through the Strait of Hormuz.
Simultaneously, Asian refiners have significantly increased their purchases of US crude due to the escalating conflict and the near standstill of observable traffic through the Strait of Hormuz. At least 11 million barrels of US crude were sold to Asian buyers, including refiners in South Korea, Japan, and Thailand, with more deals anticipated. This surge in demand comes after a period of quiet trade, as Middle Eastern supplies, now under threat, had previously flooded the spot market. The renewed interest in US oil also coincides with a narrowing price differential between the two regions, making American crude more attractive.
Analysts are warning of further price increases if the conflict escalates. Anindya Banerjee of Kotak Securities noted that the market's reaction is driven more by the collapse of diplomatic efforts than by military action alone, pushing Brent crude towards the upper end of their base-case range of $70-$80 per barrel. He suggested prices could reach $85-$90 if shipping disruptions worsen, while Nuvama Institutional Equities warned of a potential surge to $110-$150 per barrel if an extended closure of the Strait of Hormuz, which handles approximately 20 million barrels per day of crude flows, occurs.
Despite the immediate price surge, some analysts believe the physical oil market is currently well-supplied. However, experts like Tim Waterer of KCM Trade warned that Brent crude could hit $100 a barrel if energy infrastructure in the Gulf is destroyed. Conversely, diplomatic efforts to de-escalate tensions and reopen the Strait could see prices retreat to $75-$80. The outlook remains skewed to the upside as long as uncertainty surrounding oil shipments persists amid the ongoing geopolitical friction and renewed US naval blockade.
