Oil prices experienced a historic surge, with Brent crude climbing above $110 per barrel as markets brace for prolonged disruption from the US-Iran conflict. According to latest reports, this marked the eighth consecutive day of gains, with the contract now trading at $110.70 USD/Bbl at 11am UAE time. West Texas Intermediate also increased 2.01% to $98.31 per barrel, as markets have begun to price in a longer-than-expected disruption at the chokepoint. The International Energy Agency has described the current situation as the largest supply shock on record, as the shutdown of the Strait of Hormuz has halted roughly 20% of global oil shipments. The Strait of Hormuz normally handles about 20% of global oil trade, making its effective closure a critical supply disruption for the global energy market. Oil prices are currently trading roughly 50% above pre-conflict levels, which is changing the way investors perceive risk, according to Swissquote Bank analysts. Industry voices are increasingly warning of the US-Iran war degenerating into a 'forever' conflict, with the failure of this weekend's Islamabad talks and Trump's subsequent comments on Iranian ceasefire proposals adding to escalation fears.
Goldman Sachs has warned that oil prices could approach $120 a barrel later this year amid a continued stalemate in peace talks between the US and Iran, which leaves Gulf shipments uncertain for longer. The global investment bank raised its oil price forecasts for the fourth quarter of 2026, lifting its Brent crude target to $90 per barrel and WTI to $83 per barrel. Goldman Sachs analysts led by Daan Struyven said in a research note that the economic risks are larger than their crude base case alone suggests because of the net upside risks to oil prices, unusually high refined product prices, products shortages risks, and the unprecedented scale of the shock. Vandana Hari, chief executive of Singapore-based Vanda Insights, said US President Donald Trump is 'sceptical of Iran's offer to end the Strait of Hormuz blockade but postpone nuclear talks'. Insurers have tightened requirements for ships in the strait, adding to supply disruption concerns.
The United Arab Emirates has announced its shock exit from OPEC and OPEC+ effective May 1, claiming the decision follows a review of its production capacity targeting 5 million b/d by 2027 and was based on the country's national interests. According to The Economic Times, analysts did not expect any major near-term impact on the market by this move. ANZ Research noted that the UAE's exit from OPEC+ formalises the organisation's weaker cohesion, but the near-term impact is limited. The move reflects long-standing quota tensions, but prices are still being driven more by geopolitics, inventories and logistics than by institutional changes. As reported by ING analysts, there must be a resolution in the Persian Gulf that allows uninhibited energy flows through the Strait of Hormuz once again before the UAE's output increase can come into effect. The sudden announcement has seemingly overshadowed the US-Iran war on Tuesday, prompting market participants to speculate if this could lead to a wider shake-up of Middle Eastern energy policies.
The US-Iran conflict has propelled currencies from energy-exporting countries into the limelight, with windfall profits from exports of oil, gas and metals helping them to outperform the US dollar. Strategists from JP Morgan and Deutsche Bank have singled out the Norwegian krone and the Australian dollar as the most promising energy-linked currencies, while the Brazilian real has so far been the best-performing major currency with a 3.15% uplift on the US dollar since March. Kazakhstan has been the best-performing currency globally, gaining 10% over the past two months, as crude oil accounts for 17% of the country's GDP. Windfall profits from energy sales could prompt major exporters to adopt a tighter monetary policy, potentially even interest rate hikes in 2026 to cap inflation. India, 89% dependent on crude oil imports to cover its domestic needs, has caught the other end of the stick, with the Indian rupee losing almost 3.5% compared to the US dollar since the onset of the US-Iran war.
The recent price surge has been dramatic, with Brent crude oil gaining 5.58% over the past 4 weeks and 85.69% over the last 12 months. In the medium to longer term, the UAE's decision means more supply for the market, which suggests that the Brent forward curve should move into deeper backwardation. Market participants awaited data from the U.S. Energy Information Administration on stockpiles, with the American Petroleum Institute reporting on Tuesday that domestic crude oil inventories fell for a second week. The recent rise in oil prices has been driven by the Strait blockade, with analysts emphasizing that supply disruptions would worsen further and continue to push oil prices higher if the blockade is extended. Low inventories and the need to replenish both commercial and strategic reserves are likely to keep oil prices supported in the near term. Shell (LON:SHEL) has agreed to purchase Canadian oil and gas producer ARC Resources for $16.4 billion in a cash-and-stock deal, boosting its production by some 370,000 boe/d, particularly in the Montney shale basin.
