Brent crude soared nearly 8 per cent, precisely by 7.78 per cent or $7.87, on Thursday, but closed lower than the US West Texas Intermediate (WTI) at $109.03 per barrel, as traders worried about prolonged disruptions to oil supply.
The US crude grade gained $11.42 or 11.41 per cent to trade at $111.54 per barrel.
WTI rarely trades at a premium to Brent because Brent crude reflects seaborne crude and typically leads during global supply shocks, while WTI crude is usually discounted. The current inversion points to a breakdown in normal pricing signals tied to physical flows.
The rise continued after President Donald Trump said the US would “hit” Iran “extremely hard” within weeks while offering no clear plan to reopen the Strait of Hormuz. Tanker traffic through the vital trade artery has collapsed, with shipments effectively stalled and cargoes unable to clear the region.
The American President blamed the high prices on Iran “launching deranged terror attacks against commercial oil tankers and neighbouring countries that have nothing to do with the conflict.”
The strait normally handles roughly 20 per cent of global oil flows, and as the war prolonged, that volume is now constrained.
Bloomberg reported that Iran is drafting a protocol with Oman to monitor traffic in the strait just as European officials are mulling the formation of a coalition to restore oil flows through the chokepoint.
It was reported that 36 countries, minus the US, will be spearheaded by the United Kingdom to discuss ways and measures to reopen the waterway.
Asian energy buyers, including India, Pakistan, and China, are negotiating directly with Iran to ensure safe passage of their tankers through the Strait of Hormuz, but such an approach is not sustainable for a long period of time. So countries in Asia and Europe are forming alliances to seek pathways to reopening the Strait.
The United Arab Emirates (UAE), one of the Gulf producers directly affected by the closure, has called on the United Nations to authorise a range of measures, including force, to force the reopening.
The Organisation of the Petroleum Exporting Countries and its allies (OPEC+) is preparing to weigh another output increase this Sunday. Eight core members of the group are expected to discuss raising production again after agreeing to a 206,000 barrels per day increase for April. The group is likely to move forward with another hike on paper, positioning itself to add barrels quickly if the Strait of Hormuz reopens.
Meanwhile, the Federal Reserve Bank of Dallas President Lorie Logan said on Thursday that a swift war resolution may mean economic impact could be pretty moderate, adding that the economic outlook was uncertain due to the crisis.