Oil prices soared by more than 1% as soon as May 1. The ongoing geopolitical problems in West Asia are affecting expectations for crude supply. The price of Brent crude exceeded $111 per barrel, while the US oil benchmark WTI surpassed $105 per barrel.
The rise in oil prices is due to the disruption in supplies because of the continuous strain between the United States, Israel, and Iran. The Strait of Hormuz has been closed since late February, and it has affected nearly 20% of the world’s oil and LNG shipments. The rise in oil prices is very aggressive, as Brent crude has reached above $120, a level not seen since four years ago. The June contract rose to $126.41 per barrel.
Though there has been an official truce since April 8, the markets are still skeptical regarding the sustainability of stability in the region. In his statement on April 30, the spokesperson for Iran’s Ministry of Foreign Affairs, Esmaeil Baghaei, reiterated that it is “unrealistic” to anticipate any fast results from the ongoing talks between Iran and the United States. At the same time, the US is preventing the export of Iranian oil while assembling a coalition to protect shipping lanes through Hormuz.
The rising cost of crude oil is now adding to concerns about the global rise in inflation. Apart from the warnings issued by central banks in Europe and Britain, there are rising energy and transportation costs for consumers and corporations. Given that both Brent and WTI have gained ground for four successive months, the persistent surge is starting to impact risk assets worldwide.
The oil market is no longer responding to short-term catalysts but is pricing in prolonged geopolitical risk. As long as supply disruptions persist and progress on the diplomatic front lags, oil prices are expected to remain high, maintaining concerns about inflation, investor sentiment, and volatility.
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