Oil prices surged about 20% in early trade on Monday, hitting their highest since July 2022, as the expanding U.S.-Israeli war with Iran led some major Middle East oil producers to cut supplies and on concerns of prolonged disruption to shipping through the Strait of Hormuz. COMMENTARY: The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Sign up here. DANIEL HYNES, SENIOR COMMODITY STRATEGIST, ANZ, SYDNEY "I think prices have rallied this morning on the reports that Middle East producers are now reducing output due to storage facilities filling up fast. Advertisement · Scroll to continue
"I certainly think the spectre now of Middle Eastern producers curtailing output is going to keep those prices elevated. The next flag will be whether it eventually reaches a point where they have to start shutting in oil wells, which not only further impacts output but also delays a response once the conflict eases. That would potentially sustain those prices for much longer." VISHNU VARATHAN, HEAD OF MACRO RESEARCH, ASIA EX-JAPAN, MIZUHO, SINGAPORE "A sudden supply shock reverberates well beyond just who is a net energy exporter and importer. There are acute supply chain effects beyond price, eating into margins. Even in places like Indonesia, where it is not unusual to see street protests when pump prices go up. Advertisement · Scroll to continue
"Asia takes the brunt of the sharp escalation in oil prices, and there are few places to run and hide. The dollar has to be the one outperforming, given Japan and Korea's exposures here and the sharp pain that can be expected from Brent at $107." SAUL KAVONIC, HEAD OF ENERGY RESEARCH AT MST MARQUEE "The market had been complacent about the scope and duration of the war and associated supply disruptions until last Friday. "It's a case of the oil market that cried wolf. After three years of geopolitical risk premia rising only to fail to translate to supply disruptions, the market became complacent about the current events. "But this existential Iran war is the energy crisis scenario that has been wargame for 50 years, finally coming to the fore." BMI, A UNIT OF FITCH SOLUTIONS "Our baseline scenario is that the conflict in Iran will be large but short-lived, though there is a clear risk of a prolonged war. Among emerging markets, the economic impact will be most pronounced in the Gulf Cooperation Council, reflecting the shock's adverse effects on trade, logistics, tourism, and investment. Every day that this lasts, we should expect on ballots that oil enters upwards.
"First, Pakistan and India are most vulnerable as they are energy importers with relatively high exposure to the Strait of Hormuz. Second, outside of physical trade disruption, Egypt and Turkey are most exposed. This is due to their high energy import bill, fragile external positions, large energy subsidies, and unanchored inflation. Third, commodity-producing economies in Sub-Saharan Africa and Latin America are least at risk, including Nigeria, Ghana, and Peru." MICHAEL MCCARTHY, CHIEF OPERATING OFFICER, MOOMOO, SYDNEY "The threats to attack refineries are very concerning. Because it threatens the worst of all economic worlds. Cutting off 15%-20% of the world's oil supply not only slows down every economy globally, but it also introduces an inflation impulse. And inflation plus slowing growth is stagflation, and that's an economic disaster."
