WTI climbs above $74.50 as US strikes on Iran raise fears of supply disruption

• WTI price jumps to near $74.80 in Monday’s Asian session. 

• Concerns that energy supplies from the Middle East could be disrupted boost the WTI price. 

• The expectation of lower demand might cap the upside for the WTI. 

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $74.80 during the Asian trading hours on Monday. The WTI price has climbed to the highest level since January after the United States (US) launched direct attacks against Iran, raising fears of potential disruptions to energy supplies from the Middle East, particularly through the Strait of Hormuz.

The WTI price jumps after the US entered the conflict between Israel and Iran over the weekend, with American warplanes and submarines targeting three Iranian facilities in Iran, Fordo, Natanz and Isfahan. Additionally, Iran’s parliament has voted to shut down the Strait of Hormuz in retaliation against Trump’s attack on the country. 

A fifth of the world's oil consumption passes through the Strait of Hormuz, a gateway out of the Persian Gulf. JP Morgan analysts forecast that the oil price might increase to $130 if a prolonged Middle East war blocks the Strait of Hormuz.

Oil traders will closely monitor how Iran will respond to the US strikes. Iran’s foreign minister said on Sunday that the Islamic Republic reserves “all options” to defend its sovereignty. The concerns that energy supplies from the Middle East could be disrupted might weigh on the black gold in the near term. 

On the other hand, the estimation of lower demand might cap the upside for the WTI. In its monthly oil report last week, the International Energy Agency (EIA) revised its world oil demand estimate downwards by 20,000 barrels per day from last month's forecast and increased the supply estimate by 200,000 bpd to 1.8 million bpd.