Oil prices were up 10% on Monday after paring gains from a session high of over $119 a barrel, a peak since 2022, as Saudi Arabia and other OPEC members cut supplies due to disruptions from the expanding US-Israeli war with Iran.
Brent futures surged $9.60, or 10.4%, to $102.29 a barrel at 10:53am EDT (1453 GMT). US West Texas Intermediate (WTI) crude jumped $9.21, or 10.1%, to $100.11.
In early trade, Brent soared to a high of $119.50 a barrel, which if it held would be its biggest-ever absolute price jump in a single day. WTI hit a high of $119.48. Since the US and Israel bombed Iran on February 28, Brent has surged by as much as 65% and WTI 78%.
Monday's prices compare with all-time highs of $147.50 a barrel for Brent and $147.27 for WTI in July 2008, according to LSEG data.
Oil prices got a boost from the appointment of Mojtaba Khamenei to succeed his father Ali Khamenei as Iran's supreme leader, signaling that hardliners remain in charge in Tehran a week into its conflict with the U.S. and Israel.
Analysts said the market pared gains from session highs on factors including fears that soaring energy prices would cause inflation to skyrocket and lead to weaker economic growth, along with profit taking in a technically overbought market.
To combat rising inflation, central banks generally boost interest rates, lifting borrowing costs. This can slow economic growth and reduce energy demand.
On the technical side, WTI was the most overbought on record and Brent was the most since 1990.
Saudi Aramco starts cutting production
Saudi Aramco has begun cutting output at two of its oilfields, sources said. Analysts said last week they also expected other heavyweights in the Organization of the Petroleum Exporting Countries (OPEC), including the United Arab Emirates, Iraq and Kuwait, to cut production soon as they run out of oil storage.
Saudi Aramco, which can divert some flows via the Red Sea port of Yanbu, has offered more than 4 million barrels of Saudi crude in rare tenders to counteract Hormuz being shut.
The war has virtually shut the Strait of Hormuz, through which roughly one-fifth of the world's oil and liquefied natural gas passes. A Greek-operated oil tanker, however, has sailed through the Strait with a cargo of Saudi crude.
Data analytics firm Kpler said that even if the Strait opens tomorrow, it would likely take six to seven weeks for exports to return to full capacity from the Gulf.
Record backwardation indicates supply shortages
Front-month Brent futures were on track to finish with a premium of $24 a barrel over contracts for delivery in six months. This would top the all-time high of around $22 in March 2022 in the early weeks of the Russia-Ukraine war.
This premium indicates a market structure known as backwardation, showing traders see intense current supply shortages.
The war could leave consumers and businesses worldwide facing weeks or months of higher fuel prices even if it ends quickly, as suppliers grapple with damaged facilities, disrupted logistics and elevated risks to shipping.
In the US, gasoline contracts surged to an intraday high of around $3.22 a gallon, their highest since 2022.
"Alternatives are limited, such as tapping strategic oil reserves, but in comparison to the potential magnitude of the supply disruption if the Strait stays closed longer, they are a drop in the ocean," said UBS analyst Giovanni Staunovo.
Japan said the International Energy Agency (IEA) called during an online meeting with the finance ministers from the Group of Seven (G7) nations on Monday, for member countries to coordinate a release of emergency oil reserves. France said the G7 countries have not made a decision yet and India said it has no plans to join the IEA initiative.
US Senate Democratic Leader Chuck Schumer has called on President Trump to release strategic petroleum reserves.
Natural gas markets
In natural gas markets, giant LNG exporter Qatar had already stopped production after attacks on key infrastructure.
Refinery disruptions add to fuel supply cuts, with Bahrain's BAPCO announcing a force majeure following a recent attack on its refinery complex. Saudi Arabia has already shut its biggest oil refinery.
Elsewhere in the Middle East, Turkey said on Monday that NATO air defences shot down a second Iranian ballistic missile that had entered its airspace.
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