Oil prices surged over $2 a barrel on Thursday after Iran declared the closure of the Strait of Hormuz, the critical shipping route, in response to further U.S. strikes on Iranian targets. Iran’s leading joint military command announced on Thursday that the Strait of Hormuz is closed to oil tankers and commercial vessels, cautioning that any ship attempting to navigate through the waterway would face gunfire. Brent crude futures increased by $2.30, representing a 2.47% rise, reaching $95.40 per barrel. Meanwhile, U.S. West Texas Intermediate crude saw an uptick of $2.60, or 2.89%, bringing it to $92.63 per barrel. Earlier in the session, U.S. crude futures had increased by over $3. The U.S. military stated on X on Wednesday that commercial shipping persisted in navigating through the strait in both directions.
It was also noted that no U.S. warships had sustained damage in the region, contradicting claims from Iranian state media that American vessels in proximity to the waterway had been targeted by missile and drone strikes. U.S. forces initiated new strikes on various targets within Iran on Wednesday, representing the most recent intensification in a conflict that had remained relatively dormant since early April, when both parties reached a tenuous ceasefire agreement. The Strait of Hormuz, which typically manages approximately one-fifth of global oil and gas shipments, has remained effectively obstructed for months, contributing to the sustained elevation of oil prices. Morgan Stanley characterised the oil market as being in “a race against time,” cautioning that certain factors which have constrained price increases may diminish if the Strait of Hormuz remains closed through June.
The broking observed that increased U.S. crude exports alongside diminished demand from China have, to this point, contributed to mitigating a portion of the supply shock. However, it cautioned that global supplies could tighten again if disruptions in the strategic shipping route persist, particularly beyond the timeframe during which the U.S. and China can mitigate the impact. Haitong Futures indicated that crude prices may approach the upper limit of their trading range, as the convergence of tightening supply-demand dynamics aligns with a swift reduction in global oil inventories. Analysts indicated that even in the event of a ceasefire, it may take months for shipping activity through the Strait of Hormuz to normalise. Any damage to energy infrastructure would likely prolong the recovery process further.
Nuvama Institutional Equities indicated that a prolonged closure of the Strait of Hormuz could significantly impact approximately 20 million barrels per day of crude oil transportation worldwide. In this context, the broking indicated that oil prices might rise to a range of $110 to $150 per barrel. Supply concerns were exacerbated by a significant reduction in U.S. crude inventories. The Energy Information Administration reported on Wednesday a decline in U.S. crude stockpiles, which decreased by 7.2 million barrels, bringing the total to 426.5 million barrels for the week ending June 5. Analysts had anticipated a reduction of 4 million barrels, according to source.