LONDON: Oil prices held above $100 per barrel on Thursday as supply disruptions linked to the Middle East conflict continued to tighten global markets amid indirect diplomatic contacts between the United States and Iran to end the war.
Brent crude futures rose $2.08, or 2.03%, to $104.30 a barrel by 0638 GMT, while US West Texas Intermediate (WTI) crude gained $1.93, or 2.14%, to $92.25, according to Reuters.
Both benchmarks had fallen more than 2% in the previous session.
The gains reflect persistent concerns over constrained supply, particularly due to disruptions around the Strait of Hormuz, a critical artery for global energy flows.
Strait of Hormuz disruption
The closure of the Strait of Hormuz, which facilitates around 20% of global oil and liquefied natural gas shipments, has significantly restricted supply.
Fiona Cincotta, senior market analyst at FOREX.com, said the Strait “remains effectively closed, keeping supply concerns firmly in place”.
Analysts estimate that oil flows through the passage have dropped to just 4% of normal levels, with around 15 million barrels per day not reaching global markets, according to Goldman Sachs.
The International Energy Agency (IEA) has described the disruption as unprecedented, reinforcing a tight supply backdrop and sustaining a strong risk premium in oil markets.
Supply shocks offset relief measures
Markets are also absorbing disruptions beyond the Middle East.
Around 40% of Russia’s oil export capacity has been halted due to ongoing conflict and drone strikes, while Iraqi production has slowed as storage capacity nears its limit.
Although Japan has released additional strategic reserves and called for coordinated global action, analysts say these measures are insufficient to offset the scale of supply losses.
Japanese Prime Minister Sanae Takaichi said Tokyo would tap both national and jointly held reserves with producing nations following discussions with IEA Executive Director Fatih Birol.
Market volatility persists
Oil markets remain highly volatile amid ongoing indirect US-Iran negotiations.
While Washington has pushed for talks and shared a 15-point proposal with Tehran through Pakistan, Iran has said it is reviewing the proposal.
Market participants say the absence of credible de-escalation is sustaining price volatility.
“Crude-oil-price volatility is likely to persist on conflicting news flow about the war,” Citi Research analyst Eric G. Lee said, adding that prices could reach as high as $120 per barrel in the near term if disruptions continue.
Dennis Kissler of BOK Financial said the prolonged nature of both the Middle East conflict and the Russia-Ukraine war was supporting prices, noting that “without the Strait of Hormuz providing safe passage, WTI looks to be well supported”.
Inflationary pressures
Rising oil prices are feeding into broader economic concerns, pushing up inflation and global bond yields.
Fitch Ratings said higher oil prices and falling equity markets could significantly weigh on global growth if the conflict persists.
Under an adverse scenario, global GDP would be about 0.8% lower after four quarters compared with baseline forecasts, Fitch said, citing its analysis using the Oxford Economics Global Economic Model.
The agency projected US growth could slow to 1.5% in 2026, while China’s growth could fall below 4% and the eurozone below 1%.
Inflation across major economies could rise by 1.3 percentage points, with sharper increases expected in emerging markets.
