Oil prices surged over 6 per cent on Wednesday as deadlocked US-Iran negotiations made investors more concerned about prolonged disruptions to Middle Eastern supply.
Brent crude settled at $118.03 per barrel after gaining $6.77 or 6.1 per cent, and the US West Texas Intermediate (WTI) crude rose by $6.95 or 7 per cent to $106.88 a barrel, the highest since April 7.
A White House official said that President Donald Trump had asked US oil companies about ways to mitigate the impact of a potentially months-long US blockade of Iranian ports
This added fresh concerns that disruptions to Middle Eastern oil supply could be prolonged.
Estimates show that over $50 billion worth of crude oil supply has been lost since the start of the Iran war.
Market analysts warned that if President Trump extends the blockade, supply disruptions would worsen further and continue to push oil prices higher.
Elsewhere, the Abu Dhabi National Oil Company (ADNOC), which is the state oil company of the United Arab Emirates (UAE), has notified some customers that they could load two crude grades outside of the Gulf next month because the Strait of Hormuz remains closed.
This comes after it decided to quit the Organisation of the Petroleum Exporting Countries (OPEC) years after Angola made the same decision.
Investors were also assessing the ramifications of the Middle East producer’s decision to quit the oil cartel.
Analysts do not expect any major near-term impact on the market. Over the near term, Middle Eastern producers will bring whatever they can to market.
Wood Mackenzie said the UAE’s exit is the most significant fracture in OPEC’s history, and it increases the risk of oversupply that could cause oil prices to decline from 2027.
Signs of tightening supply have started to show in the US as Energy Information Administration (EIA) data showed crude stocks fell over 6 million barrels last week.
Meanwhile, Reuters reported that OPEC+ will likely agree on a small oil output quota hike on Sunday despite the loss of the lion’s share of its exports due to the US-Israeli war with Iran.
The oil producer group will likely agree on an increase of around 188,000 barrels per day in oil output targets, the sources said. The increase is similar to last month’s hike of 206,000 barrels per day, minus the share of the UAE, which leaves the group from May 1.
The seven members meeting on Sunday are Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman. With the UAE leaving, OPEC+ includes 21 members, including Iran, but in recent years, only the seven nations plus the UAE have been involved in monthly production decisions.