Oil futures rallied Friday to their highest finish in over two years, with U.S. prices scoring a record weekly gain of nearly 36%, as the Iran conflict ran through a seventh day and the Middle East started to feel a squeeze in production and storage capacity.
The simple equation is that the longer the Strait of Hormuz is “impassable,” the higher prices are likely to go, said Michael Brown, senior research strategist at Pepperstone. Around 20 million barrels per day of oil, or one-fifth of the world’s seaborne crude oil, passes through the strait.
Shipping traffic through the waterway, one of the most important shipping routes in the world, has been virtually shut down as Israel and Iran continue to carry out strikes in the Middle East, following the initial U.S.-Israel attack on Iran last weekend.
“Storage is an issue, and arguably that’s the main risk right now,” said Brown. “If production does need to be shutdown, as we’ve [reportedly] seen from fields in Kuwait and Iraq … it can take many weeks, or even months, to fully restart production to the level it was at previously.” That would prolong any gains seen in benchmark crude prices, he told MarketWatch.
Read: Oil-production shutdowns loom as some Middle Eastern countries could run out of storage
On Friday, West Texas Intermediate oil CL00 for April delivery CLJ26 jumped 9.9% to settle at $90.90 a barrel. It tallied a weekly rise of almost 36%. That was the biggest weekly rise on record, which dates back to March 1983, according to Dow Jones Market Data. WTI oil marked its highest finish since September 2023.
Brent crude BRN00 saw its May contract gain 8.5% to settle at $92.69, and was 27% higher for the week. That was also its best weekly performance on record and highest finish since September 2023.
Read: Why the U.S.’s ‘newfound oil’ in Venezuela won’t offset an Iran oil shock
Qatar Energy Minister Saad al-Kaabi warned in the Financial Times that the Middle East conflict could force Persian Gulf countries to halt energy shipments within a matter of weeks. He said that could drive oil to $150 a barrel and bring down the economies of the world.
Kuwait, meanwhile, has started to cut production at some of its oil fields because of a lack of room to store its crude, the Wall Street Journal reported, citing people familiar with the matter.
One carrier with liquefied petroleum gas that had been sanctioned by the U.S. government did transit the strait, according to Ed Finley-Richardson, a shipping expert. He said that likely means it’s taking energy supplies from Iran to China.
Prices to charter large oil tankers have soared, nearly doubling in recent days, and President Donald Trump said a U.S. government agency would provide political-risk insurance for maritime trade.
Still, “if there are no tankers, there is nowhere to put the oil — it’s as simple as that,” said Pavel Molchanov, a Raymond James investment-strategy analyst. “This is just the reality of how logistics work in the Persian Gulf.”
Physical supply is “at risk of potential deficit right now — not in two or three months,” he told MarketWatch. That’s signaled by the steeply backwardated, or downward-sloping, futures curve, he noted, in which the current spot price of oil is higher than prices for crude for future delivery.