Iran Blocks Strait of Hormuz

The ongoing conflict between the US, Israel, and Iran has caused significant disruption in global oil supplies, leading to record-high prices. The Strait of Hormuz, a critical waterway for 20% of the world's oil and gas, has been effectively closed by Iran, causing a supply gap that is expected to persist.

According to multiple reports, flows of crude and condensate have dropped by about 12 million barrels per day, or around 12% of daily world demand. This has led to a surge in oil prices, with benchmark Brent crude hitting a session high of $119 before settling around $109 a barrel. The benchmark Middle East Dubai crude price hit a record $166.80 a barrel.

Refineries across Asia and Europe are snapping up whatever barrels they can secure to plug the enormous supply gap. They have looked further afield to substitutes for Middle Eastern supply, which is mainly medium-density and high in sulphur, known as sour crude. Russia's Urals, a medium sour crude, has seen its price surge, with deliveries to India trading at a premium to Brent earlier this month for the first time ever.

The US and other members of the International Energy Agency (IEA) announced they would release 400 million barrels from strategic reserves on March 11. However, experts suggest that these moves may not be enough to offset the supply gap caused by the closure of the Strait of Hormuz. The market ultimately runs on barrels moving, not barrels being announced.

Global stocks fell on Wednesday, extending declines after the Federal Reserve kept interest rates unchanged, while a rise in crude prices and an earlier reading on U.S. inflation kept equities under pressure. The Fed's benchmark overnight interest rate is projected to fall by just a quarter of a percentage point by the end of this year, with no hint of the timing of such a move, while the inflation projection for the end of the year was raised to 2.7%. Investors are focused on tensions in the Middle East and when the Strait of Hormuz might reopen.

U.S. crude rose slightly to settle at $96.63 a barrel, and Brent settled at $107.38 per barrel, up 3.83% after Iran's huge Parsgas field was hit on Wednesday. This strike on Iranian energy infrastructure prompted Tehran to warn its neighbors to evacuate their energy installations.

Oil prices saw significant volatility as President Donald Trump issued an ultimatum demanding Iran reopen the Strait of Hormuz or face strikes on its energy infrastructure. Iran responded by threatening to target critical infrastructure and energy facilities in the Gulf region if attacked. Brent crude gained 0.23% to $112.42 per barrel, while U.S. West Texas Intermediate crude rose around 0.28% to $98.51 a barrel.

Goldman Sachs raised its oil price forecasts, expecting Brent to average $110 in March and April, up from a previously forecast of $98. The bank also upgraded its WTI estimates to $98 in March and $105 in April. Should Hormuz flows remain at 5% for 10 weeks, daily Brent prices will likely exceed their 2008 record level.

Fatih Birol, the executive director of the IEA, warned that the situation in the Middle East is 'very severe' and far worse than previous oil shocks. The spread between crude benchmarks Brent and U.S. WTI exceeded $14 a barrel, reflecting greater sensitivity to geopolitical risk for seaborne benchmark Brent.

Traders bet half a billion dollars on the price of crude only 15 minutes before U.S. President Donald Trump announced a five-day delay to attacks on Iran's energy infrastructure that sent the market plunging. The announcement led to a powerful selloff in oil and natural gas, with Brent crude falling as much as 15% in a matter of minutes.