Brent tops $106 as Hormuz disruption sparks fresh oil supply fears

Brent crude oil prices climbed sharply to hit more than $106 per barrel on Monday as market attention shifted back to the persistent security threats targeting Middle East oil infrastructure, even as US President Donald Trump urged international cooperation to protect the Strait of Hormuz, a crucial transit point for global energy shipments.

Brent crude oil was last at $104.86 per barrel, up 1.7%, while West Texas Intermediate was 1.2% higher at $97.95 per barrel. Brent had hit a session’s high of $106.50 per barrel.

Following the US-Israeli strikes on Iran, Tehran has halted shipping through the Strait of Hormuz.

This action, which has choked off one-fifth of the world's oil supply, represents the most significant disruption in history.

Consequently, both crude oil benchmarks have seen a surge of over 40% this month, reaching their highest levels since 2022.

Key infrastructure targeted and supply risks

While US strikes on Kharg Island over the weekend did raise concerns about oil supply, as this island is a major transit point for Iranian oil exports, the strikes reportedly focused on military, not energy, infrastructure.

“It still poses supply risks, particularly given that Iranian oil is about the only oil moving through the Strait of Hormuz,” Warren Patterson, head of commodities strategy at ING Group, said in a note.

“Targeting Iranian oil infrastructure only increases the risk that Iran will further target regional energy infrastructure. This would potentially prolong the recovery of oil flows, even if the Strait of Hormuz reopens.”

Following the Kharg Island military strikes, which export about 90% of Iran's oil, Trump threatened further attacks on the island, potentially provoking further retaliation from Tehran.

In response to the Kharg attacks, Iranian drones hit a significant oil terminal in Fujairah, United Arab Emirates.

While reports indicated that oil loading operations at Fujairah have resumed, it is uncertain if they are fully back to normal.

Fujairah is a key outlet for the UAE's primary Murban crude oil, handling approximately 1 million barrels per day.

This volume represents about 1% of global demand and the terminal is strategically located outside the Strait of Hormuz.

“The port is outside the Strait of Hormuz, so any disruption to oil loadings would lead to further market tightening,” Patterson said.

Global response and emergency oil reserves

Trump stated on Sunday that he is demanding that other countries assist in protecting the critical energy route.

He mentioned that Washington is currently in discussions with several nations regarding policing the route.

The US is also in communication with Iran, according to Trump, though he expressed skepticism about Tehran's readiness for serious negotiations to resolve the conflict.

The International Energy Agency (IEA) has provided more detailed information regarding the coordinated release of oil from emergency reserves, which is now confirmed to be slightly under 412 million barrels, exceeding the initially reported 400 million barrels.

This emergency oil will be accessible immediately to member countries in Asia. However, the supply for the Americas and Europe will not be available until the end of March.

“The urgency of releasing volumes in Asia makes sense; the region is more reliant on oil flows through the Strait of Hormuz,” Patterson added.

Despite Asia accounting for only 26% of the coordinated release, the market will need to be patient for larger volumes to arrive from Europe and the Americas.

The US Department of Energy announced that the planned release of 172 million barrels will be executed as an exchange, not an outright sale.

This structure requires buyers to return the barrels to the Strategic Petroleum Reserve (SPR) later, including an added interest or premium.

This decision to use an exchange likely stems from US concerns about its ability to refill the SPR effectively if the release had been structured as a standard sale.