Oil price breakdown sends new signals: the market is pricing in a "long-term battle" WTI crude hits 20-month high

Bloomberg News has learned that as investors continue to digest expectations of prolonged conflict in the Middle East, U.S. crude oil futures surged to their highest level in 20 months. On Thursday, WTI crude futures rose sharply by 8.5%, with the final settlement price approaching $81 per barrel, the highest since July 2024. Meanwhile, the global benchmark Brent crude futures also closed above $85 per barrel.

The Trump administration indicated it is weighing multiple response options to ease the pressure of rising oil prices triggered by military actions against Iran, after which crude prices pulled back in after-hours trading. Possible measures include releasing crude from the U.S. Strategic Petroleum Reserve and directly purchasing crude futures contracts by the U.S. Department of the Treasury.

Earlier that day, China had demanded major refining companies suspend exports of diesel and gasoline. This move shows China prioritizing domestic energy supply, but it could impact international consumers. At the same time, Japanese refineries have also requested the government to release strategic oil reserves. Meanwhile, Kuwait has reduced processing rates at three of its refineries.

Arab countries in the Middle East and Israel reported ongoing interception of missiles and drones from Iran as of Thursday. Qatar has advised residents to stay at home and avoid going out. Iran claimed it attacked a tanker in the Persian Gulf, highlighting the serious risks to shipping security in this energy-rich region.

Priyanka Sachdeva, senior market analyst at Phillip Nova Pte brokerage, said, “If there are successful attacks again on tankers or infrastructure, or if supply disruptions persist, oil prices could spike sharply once more.”

The market’s core concern remains the Strait of Hormuz, through which about 20% of the world’s oil supplies are transported. Although Iranian military commander Amir Heydari stated, “We do not believe” the strait will be closed, the channel is effectively blocked—almost no shipowners are willing to risk navigation, even though London-based insurers claim coverage is available. This has led to a backlog of oil supplies, forcing some producers to halt operations.

To break the deadlock at the Strait of Hormuz (a critical waterway connecting the Persian Gulf and Indian Ocean), the U.S. has proposed a plan to provide insurance guarantees for passing ships and may deploy naval escorts. However, traders are generally skeptical of this plan.

Compared to Brent crude, U.S. crude futures have risen more rapidly, driven by concerns that long-term disruption of the Strait of Hormuz will increase demand for WTI, which is considered less affected by Gulf bottlenecks. Additionally, rising freight costs, seasonal refinery maintenance, and tightening domestic supplies in the U.S. have also supported U.S. crude prices.

This market dynamic is reflected in the spot price spreads between the two major benchmarks (the price difference between contracts for the next two months). Over just a little more than a week, Brent’s spot spread widened by nearly $4 per barrel, while WTI’s spread only increased by about $2 per barrel, highlighting a more severe short-term supply tightness in the North Sea market.

The conflict has not only driven up prices for crude oil, natural gas, and refined products, but also increased transportation costs, impacting producers and importers dependent on regional energy supplies, and reigniting concerns over inflation.

Aggregated vessel tracking data shows that traffic through the Strait of Hormuz has plummeted by over 95%, with major oil tankers and liquefied natural gas ships choosing to avoid the route. The few ships still navigating leave the Gulf area with their transponders turned off, a common practice in conflict zones.

According to data from the International Energy Agency (IEA), based in Paris and advising major economies, approximately 15 million barrels of oil and an additional 5 million barrels of refined products are transported daily through the Strait of Hormuz in 2025.

In a report on its website, the IEA warned, “The scale of oil exports via the Strait of Hormuz is enormous, and there are almost no alternative routes. Any disruption affecting the passage of this strait would have extremely serious consequences.”

The fuel market has already felt the impact of the conflict. A major heating oil retailer in the UK reported managing rationing supplies to ensure fair distribution amid surging demand. Since the outbreak of the conflict, European diesel benchmark prices have risen by over 40%.