Oil markets extended their gains on Monday, with U.S. benchmark West Texas Intermediate settling at $112.41 per barrel and international standard Brent crude finishing at $109.77. The session saw volatile trading as market participants weighed potential diplomatic developments against the persistent physical supply constraints caused by the ongoing blockage of the Strait of Hormuz.
The critical maritime chokepoint, which typically handles approximately 20% of global seaborne oil and gas shipments, remains effectively closed. Iranian authorities have maintained their position that the strait will stay shut absent a ceasefire agreement, though a limited number of vessels from nations viewed favorably by Tehran have been permitted passage since last Thursday. "The passage of some ships through the strait over the weekend has been the most significant development," noted SEB analyst Ole Hvalbye, highlighting the fragile nature of current transit conditions.
Physical crude markets are experiencing extreme strain. Spot premiums for U.S. crude have skyrocketed to record levels as buyers in Asia and Europe compete aggressively for alternative barrels. July-loading WTI Midland cargoes destined for North Asia have been offered at staggering premiums of $30 to $40 above benchmark prices. This tightness is further reflected in the market structure, with WTI's prompt spread shifting into steep backwardation, indicating intense demand for immediate delivery. "Asian refiners, largely cut off from Middle Eastern supply, are bidding aggressively for every available Atlantic Basin barrel," explained Paola Rodriguez-Masiu of Rystad Energy.
In response to the crisis, the OPEC+ alliance agreed on Sunday to implement a modest production increase of 206,000 barrels per day for May, attempting to demonstrate market flexibility. The group emphasized this decision could be paused or reversed if conditions warrant. However, analysts widely dismissed the move as largely symbolic given the scale of the disruption. With an estimated 12 to 15 million barrels per day of supply currently delayed or sidelined due to the Hormuz impasse, the incremental addition is negligible. "In reality it adds very few barrels to the market," stated Jorge Leon, head of geopolitical analysis at Rystad Energy.
The supply shock is reshaping producer economics. A Reuters analysis indicates Saudi Arabia, which can export via alternative routes that bypass the Strait of Hormuz, has been a net beneficiary of the price surge. In contrast, Iraq and Kuwait, which remain heavily dependent on the blocked waterway for exports, are suffering severe revenue losses. The disparity highlights the geopolitical and logistical vulnerabilities within the global oil trade.
Iraq is actively attempting to restart its export flows. The country's state oil marketer, SOMO, has instructed customers to submit lifting schedules within 24 hours following indications that Tehran might permit unrestricted transit for Iraqi cargoes. Basra's loading terminals are reportedly prepared to handle full export programs. However, significant uncertainty persists among market participants regarding whether shipowners and tanker operators are willing to risk sending vessels into the volatile Gulf region under current conditions.
Despite the bullish pressures, analysts note that crude now faces a more defined downside risk, contingent on several factors. "We have not received any formal documents regarding permission for Iraqi tankers to pass," Bassem Abdul Karim, chief of the Basra Oil Company, told Reuters. He added that if hostilities cease and safe transit through Hormuz is restored, Iraqi exports could potentially rebound to approximately 3.4 million barrels per day within a week, providing substantial relief to the market.
The ramifications of the oil market turmoil are spreading throughout the global economy. International Monetary Fund Managing Director Kristalina Georgieva offered a stark assessment: "All roads now lead to higher prices and slower growth." In Japan, the central bank flagged concerns that domestic companies are already warning of squeezed profit margins, weaker consumer spending, and tighter industrial supplies should the conflict persist, underscoring the broad macroeconomic threat posed by sustained energy price inflation.
