Crude Oil Remains Elevated as Supply Risks Turn Into Actual Disruptions

Oil prices continue to hold at elevated levels, with Brent hovering around USD 103.6 per barrel and WTI near USD 95 in early Asian trading, as markets face escalating tensions in the Middle East. According to recent reports, oil prices have risen approximately 40–50% since late February, reflecting a market increasingly characterized by tight supply under uncertainty, where supply disruptions coincide with relatively stable global demand, particularly across transportation and industrial sectors.

The primary driver stems from Iran’s first direct attacks on oil and gas production facilities in the UAE and Iraq, including the Shah gas field and the Majnoon oilfield. This development marks a critical shift, as supply risks are no longer merely anticipated but have materialized into actual disruptions, forcing the market to reprice the global supply–demand balance in the short term. In practice, these attacks have significantly impacted production in certain areas, with output in parts of the UAE reportedly dropping by as much as 50%, while exports through key ports such as Fujairah have been disrupted.

At the same time, the Strait of Hormuz remains a critical bottleneck for global energy markets. This corridor accounts for roughly 20% of global oil supply, and any disruption in this region can trigger widespread ripple effects across the entire supply chain. Some estimates suggest that global supply losses could reach around 8 million barrels per day, equivalent to nearly 8% of global demand, sufficient to create a meaningful tightening in market conditions.

From my perspective, the market is no longer simply pricing geopolitical risk, but rather pricing actual supply disruption. This distinction is crucial, as real supply losses tend to trigger stronger and more sustained price reactions compared to periods dominated by perceived risk alone. This also suggests that the current upward momentum in oil prices may not yet be exhausted.

In response to these disruptions, major producers in the region, particularly Saudi Arabia, are increasing exports via pipeline networks to reduce reliance on the Strait of Hormuz, with capacity potentially reaching 5.5–6 million barrels per day. However, this remains insufficient to fully offset the volume typically transported through Hormuz. Meanwhile, the International Energy Agency (IEA) is considering releasing strategic petroleum reserves on the scale of hundreds of millions of barrels, though such measures are largely short-term in nature and unlikely to fully compensate for supply shortages if tensions persist.

In reality, these interventions may alleviate pressure in the short term but are insufficient to alter the broader market structure. This helps explain why oil prices have remained above the USD 100 per barrel threshold despite policy efforts. Notably, pressure is not limited to crude oil but is increasingly spilling over into refined products such as diesel and jet fuel, where shortages in some cases may be even more severe due to simultaneous disruptions in both production and logistics.

Looking ahead, while markets will monitor the Federal Reserve’s interest rate decision and USD movements, which may exert some influence on oil prices, I view these as secondary factors in the current environment. The primary focus remains on geopolitical developments, with oil prices trading in a highly headline-driven manner, characterized by elevated volatility and rapid reactions to incoming news. Under this framework, I maintain a short-term bullish bias, particularly if tensions escalate further or supply disruptions intensify, which could push Brent toward the USD 110–120 range and WTI above USD 100, or even higher under extreme scenarios.

Conversely, any signs of de-escalation, such as the restoration of stable shipping flows through the Strait of Hormuz or progress in diplomatic negotiations, could trigger a sharp correction as the embedded “risk premium” unwinds. In this context, although the near-term bias remains skewed to the upside, I believe the market is entering a phase of potentially extreme volatility, requiring investors to remain highly cautious of sudden, news-driven risks.