Oil prices rose on Thursday amid growing concern over the prolonged closure of the Strait of Hormuz, as the US-Iran war chokes off vital Middle East oil and gas flows while production facilities limit output.
Brent crude was trading up $1.67, or 2.05 per cent, at $83.07 per barrel by 0141 GMT. US West Texas Intermediate crude rose $1.94, or 2.60 per cent, to $76.60.
The US-Iran war widened on Wednesday after a US strike hit an Iranian warship off Sri Lanka and US Senate Republicans backed President Donald Trump’s military campaign against Iran.
They voted against a bipartisan resolution aiming to stop the air war and require Congress to authorise hostilities against Iran.
Iraq, the second-largest crude producer in the Organisation of the Petroleum Exporting Countries, has cut output by nearly 1.5 million barrels a day for lack of storage and an export route, officials told Reuters.
Qatar, the biggest liquefied natural gas producer in the Gulf, declared force majeure on gas exports on Wednesday, with sources saying a return to normal production volumes may take at least a month.
Shipping via the Strait of Hormuz, a key conduit for nearly a fifth of global energy consumption, has ground to a near-halt for the fifth day during the war on Iran and Tehran’s retaliation.
Britain’s maritime trade operations agency reported a large explosion heard and seen by the master of a tanker anchored 30 nautical miles southeast of Kuwait’s Mubarak Al Kabeer, with a small craft later seen leaving the area.
Iran has refrained from targeting most critical energy infrastructure while keeping shipping risk extremely elevated, J.P. Morgan said in a client note, estimating that about 329 oil vessels are stuck in the Gulf.
“Storage capacity in the Gulf Cooperation Council countries and prevailing energy prices are limiting factors on the length of the US campaign,” it added.
The reference was to the political and economic alliance of Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain.
Most of the oil fields can restart within days, with full capacity typically restored within two to three weeks, J.P. Morgan said.
“While operators must gradually rebuild reservoir pressure, particularly in Iraq, where water injection is critical, the primary constraint today is logistics rather than geology.”
