Oil Prices Break $100 Mark, Surging 30% Within a Day. Is an Energy Crisis Coming? Wall Street Warns: Oil Prices May Break Historical Peaks

TradingKey - Oil prices skyrocketed at the open on Monday (March 9). During the session, WTI crude oil futures surged over 30% to $118.7 per barrel, while Brent crude oil futures jumped more than 26%, hitting a peak of $119.46 per barrel. This marks the first time international oil prices have surpassed $100 per barrel since 2022.

On March 9, according to ship-tracking data compiled by Bloomberg, the Strait of Hormuz has been in a state of de facto blockade for the seventh consecutive day. In the past 24 hours, only one Iran-related bulk carrier sailed out of the Persian Gulf, and no vessels entered the Gulf from the opposite direction.

Meanwhile, with crude oil exports blocked and storage capacity rapidly reaching critical levels, an increasing number of major Middle Eastern oil producers have been forced to announce production cuts. Kuwait has officially announced significant output reductions, and the UAE has begun adjusting offshore production levels. Furthermore, Qatar, the world's largest exporter of liquefied natural gas (LNG), shut down its LNG facilities last week following attacks on energy infrastructure, causing natural gas prices in Europe and Asia to surge simultaneously.

As crude oil prices climb rapidly, is a global energy crisis imminent? Will oil prices sustain their rally in the short term, or are they headed for a correction from these highs?

Shutdown of the Strait of Hormuz Disrupts Crude Oil Production

At the onset of the US-Iran conflict, officials in Gulf nations generally believed the situation was manageable. According to The Wall Street Journal, officials from Gulf oil-producing countries had received assurances from the U.S. prior to the conflict that even if retaliatory actions occurred, the targets would be limited to U.S. military bases. Initially, this assurance ruled out the possibility of a blockade of the Strait of Hormuz; however, as the conflict continued to escalate, the situation spiraled out of control for all parties involved.

Approximately 1,000 vessels are currently stranded in the region. The Lloyd's Market Association (LMA) stated that the total value of the stranded ships exceeds $25 billion, with about half of them carrying oil and gas.

According to Bloomberg, Saudi Arabia is utilizing alternative routes, transporting crude oil to the Red Sea coast via the East-West pipeline. Statistics show that Saudi Arabia's average monthly exports could reach approximately 2.3 million barrels per day (bpd), roughly 50% higher than any single month's Red Sea exports since late 2016, yet still significantly below the theoretical rated capacity. Saudi Aramco data indicates that the East-West pipeline has a rated capacity of about 7 million bpd.

Analysts believe that since this pipeline has operated at low capacity for a long time, there is uncertainty regarding whether the facilities can sustain the current high-pressure operation for an extended period. Additionally, even after recent increases, the loading capacity at the Yanbu port terminal has only reached about 2.5 million bpd, and loading at West Coast refineries has reached 1.3 million bpd. This implies an upper limit of only 3.8 million bpd for the pipeline system's throughput, primarily constrained by port and shipping capacity.

Goldman Sachs (GS) pointed out that there is a massive gap between the actual diverted volume and the theoretical potential. Coupled with the security threats facing the Red Sea corridor itself, the actual effectiveness of this alternative is quite limited.

The paralysis of transportation has triggered a chain reaction across the energy supply chain. According to Bloomberg, onshore storage tanks continue to face backlogs, and some refineries have been forced to cut production. Iraq has slashed output by more than two-thirds, and Kuwait’s production cuts have expanded from 100,000 bpd to nearly 300,000 bpd.

Wall Street No Longer Optimistic: Oil Prices Expected to Break All-Time Records

On March 4, Daan Struyven, Goldman Sachs' Chief Oil Strategist, still maintained an optimistic outlook for stable oil prices, believing that the disruption of crude transport through the Strait of Hormuz was only temporary and would recover to 70% of normal volume within two weeks, with full normalization in four weeks.

However, in its latest oil report on March 6, Goldman Sachs' commodities research team reversed its previous optimism, stating that upside risks to oil prices are "expanding rapidly." Goldman Sachs predicts that if flows through the Strait remain sluggish throughout March, oil prices will surpass the historical peaks of 2008 and 2022.

In 2008, against the backdrop of surging crude demand from China and India, a sharp depreciation of the U.S. dollar, and heightened geopolitical risks, speculative trading in the crude oil futures market also spiked. Together, these factors drove oil prices to an all-time high, with both Brent and WTI crude futures hitting $147 per barrel. In 2022, following the outbreak of the Russia-Ukraine war, oil prices touched the $130 mark and remained elevated.

Goldman Sachs stated that if there is no evidence in the coming days that Strait traffic is beginning to gradually normalize, it will further raise its oil price forecasts. Goldman Sachs identified three possible paths for the restoration of traffic through the Strait: an overall de-escalation of the US-Iran conflict, the U.S. providing strong escort protection for tankers, or Iran allowing safe passage for tankers from specific origins or destinations.

Beyond the blockade of the Strait of Hormuz, production halts in major oil-producing countries will more directly transmit price pressure. JPMorgan (JPM) The commodities research team stated in its latest report that the current actual production cut is about 2 million bpd, and the regional production cut is expected to exceed 4 million bpd by this Friday (March 13). JPMorgan warned that starting this week, oil producers will be forced to move crude into onshore storage tanks, pushing the entire region faster toward a stage of forced production halts.