Oil prices surged 10% on Monday after hitting session highs above $119 per barrel, the highest level since 2022, as supply disruptions intensified amid the expanding U.S.-Israeli conflict with Iran. Brent crude futures jumped $9.60 to $102.29 a barrel, while U.S. West Texas Intermediate crude rose $9.21 to $100.11, according to trading data. The dramatic oil price increase reflects growing concerns about global energy supplies as Saudi Arabia and other OPEC members begin cutting production.
In early trading, Brent reached a peak of $119.50 per barrel, which would represent the largest single-day absolute price jump on record if sustained. Since U.S. and Israeli forces bombed Iran on February 28, Brent has surged as much as 65% and WTI has climbed 78%, marking one of the most rapid oil price escalations in recent history.
Geopolitical Tensions Drive Oil Price Volatility
The oil price rally gained additional momentum from Iran’s appointment of Mojtaba Khamenei to succeed his father Ali Khamenei as supreme leader. This leadership transition signals that hardliners remain in control in Tehran one week into the conflict with the U.S. and Israel, raising concerns about prolonged regional instability.
However, analysts said the market pared gains from session highs due to fears that soaring energy prices would trigger skyrocketing inflation and weaker economic growth. Additionally, profit-taking occurred in what analysts described as a technically overbought market, with WTI reaching its most overbought level on record and Brent hitting its highest since 1990.
Saudi Arabia and OPEC Begin Production Cuts
Saudi Aramco has started reducing output at two of its oilfields, according to industry sources. Analysts expect other major OPEC producers including the United Arab Emirates, Iraq, and Kuwait to implement production cuts soon as they exhaust available oil storage capacity.
Meanwhile, the conflict has virtually shut the Strait of Hormuz, through which roughly one-fifth of the world’s oil and liquefied natural gas passes. Saudi Aramco, which can redirect some flows via the Red Sea port of Yanbu, has offered more than 4 million barrels of Saudi crude in rare tenders to counteract the Hormuz closure.
Data analytics firm Kpler indicated that even if the Strait reopens immediately, it would likely require six to seven weeks for exports to return to full capacity from the Gulf region. One Greek-operated oil tanker has successfully sailed through the Strait carrying Saudi crude, demonstrating that passage remains possible though highly constrained.
Market Indicators Point to Severe Supply Shortages
Front-month Brent futures were on track to finish with a premium of $24 per barrel over contracts for delivery in six months. This backwardation structure would surpass the all-time high of approximately $22 reached in March 2022 during the early weeks of the Russia-Ukraine war, indicating traders anticipate intense current supply shortages.
In contrast to strategic alternatives, UBS analyst Giovanni Staunovo noted that options such as tapping strategic oil reserves remain limited. “In comparison to the potential magnitude of the supply disruption if the Strait stays closed longer, they are a drop in the ocean,” Staunovo said.
Global Response and Energy Security Concerns
Japan reported that the International Energy Agency called during an online meeting with Group of Seven finance ministers on Monday for member countries to coordinate a release of emergency oil reserves. However, France indicated that G7 countries have not yet made a decision, while India stated it has no plans to join the IEA initiative.
U.S. Senate Democratic Leader Chuck Schumer has called on President Trump to release strategic petroleum reserves. In U.S. markets, gasoline contracts surged to an intraday high of around $3.22 per gallon, their highest level since 2022.
In natural gas markets, major LNG exporter Qatar had already halted production following attacks on key infrastructure. Refinery disruptions have compounded fuel supply cuts, with Bahrain’s BAPCO announcing a force majeure following a recent attack on its refinery complex, and Saudi Arabia shutting its largest oil refinery.
The G7 nations are expected to continue discussions on coordinated strategic reserve releases in the coming days, though disagreement among member countries suggests any unified response remains uncertain. Market participants will closely monitor developments in the Strait of Hormuz and any diplomatic efforts to de-escalate the conflict.
