Oil prices surged on Monday after Iran named a new supreme leader, and the Strait of Hormuz remained closed, curtailing the transit of oil out of the Middle East.
Both WTI and Brent oil were trading above $100 at the time of writing on Monday, after the benchmarks soared through the psychological $100 mark overnight in Asian trading.
Brent touched highs above $116 per barrel before easing back to trade at $104.
“Oversupply in the global oil market has been a dominant theme in recent months, but a 70% production cut at Iraq’s three main oilfields, and a sharp fall in output from Kuwait could be followed by similar moves in the UAE and Saudi Arabia as storage reaches capacity,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“Until the Strait of Hormuz can be securely re-opened producers will be reticent to turn the taps back on, and even if that decision is made, there can be a significant lag until oil and gas wells return to full flow.”
The appointment of Mojtaba Khamenei, the son of Ali Khamenei, who was killed last week, as Iran’s supreme leader threatens to prolong the conflict and poses further risk to the supply of oil. Donald Trump has been public about who he wants and who he doesn’t want ruling Iran. Mojtaba Khamenei is someone he certainly doesn’t want ruling Iran and is likely to maintain the same level of strikes against Iran as a result.
With no end to the conflict in sight, some analysts are discussing the potential for $150 a barrel if the oil shock deepens.