Oil prices could hit $120 per barrel amid US-Iran tensions
What's the story
Oil prices have surged past the $100 per barrel mark as traders weigh the risk of supply disruptions after recent shipping attacks. Iran has claimed responsibility for targeting 10 vessels after the US sank five tankers. Market analysts warn that if tensions continue in the contested Strait of Hormuz, oil prices could rise even further, possibly hitting $120 per barrel.
Market reaction
Brent crude futures settle at highest since May 22
Iran has vowed to retaliate against any further attacks.
In response to these developments, Brent crude futures rose 0.2% to $101.80 a barrel while US West Texas Intermediate crude climbed 0.5% to $96.55 a barrel.
Brent crude futures settled at their highest since May 22, indicating a strong market response to the ongoing geopolitical tensions in the region.
Supply disruption
US Energy Information Administration raises oil price forecasts
The traffic through the Strait of Hormuz is still well below pre-war levels, with the key waterway accounting for about a fifth of global oil and gas supplies before the conflict.
The US Energy Information Administration has raised its oil price forecasts for this year and next, citing falling global stockpiles amid Middle Eastern supply disruptions.
Tim Waterer, chief market analyst at KCM Trade, told Reuters that current price movements reflect both physical supply tightness and a geopolitical risk premium.
Price prediction
Goldman Sachs warns of potential $120 per barrel spike
Goldman Sachs has warned that if attacks on Middle Eastern vessels escalate, oil prices could hit as high as $120 a barrel. However, if exports normalize, they expect oil prices to fall toward $80 a barrel.
Daan Struyven, co-head of global commodities research at Goldman Sachs, said the risks to shipping have become a key driver for oil prices and sees "meaningful upside to crude oil prices."
Future projections
JPMorgan estimates Brent prices could hit $114
JPMorgan estimates that each additional month of disruption could add $7-$8 per barrel to Brent prices. If the disruption lasts for three months, they expect average monthly Brent prices to hit around $114 a barrel.
Citi has raised its average Brent crude price forecast for Q3 to $86 per barrel from $80, citing a longer-than-expected timeline for reopening the Strait of Hormuz amid ongoing geopolitical tensions in the region.