‘Sky is the limit’: Analysts warn oil prices could surge further
- Energy analysts said oil prices could continue to rise in response to the war in the Middle East.
- “The sky is the limit,” Neil Atkinson, former head of oil at the International Energy Agency, told CNBC on Monday.
- The war is heightening fears of prolonged production shut-ins from crude-rich countries in the Middle East, as the strategically vital Strait of Hormuz is effectively closed.
Analysts warned on Monday the price of oil could keep rising, with one warning of a "game-changing and unprecedented" energy crisis as the price rose amid the war in the Middle East.
Oil prices were on track for their biggest-ever jump in a single day on Monday, before significantly paring gains, following a fresh wave of U.S. and Israeli strikes across Iran over the weekend. Oil depots were among the targets.
International benchmark Brent crude futures with May delivery traded 11.6% higher at $103.47 per barrel on Monday, while U.S. West Texas Intermediate futures with April delivery were last seen 12.2% higher at $101.97.
Brent futures had climbed as high as $119.5 per barrel earlier in the trading day, while WTI hit a session high of $119.48.
Neil Atkinson, former head of oil at the International Energy Agency, said the effective closure of the strategically vital Strait of Hormuz is something energy markets had never seen before. Unless something changes very soon "we are in a potentially game-changing and unprecedented energy crisis," he told CNBC on Monday.
Countries across the oil-rich Middle East region have started to scale back crude output. Iraq and Kuwait have already begun to shut-in production, with analysts warning that the United Arab Emirates and Saudi Arabia may also be vulnerable if the Strait of Hormuz remains closed for a sustained period.
"Though there are oil stocks around the world, the point is that if this closure of the Strait persists, those oil stocks if they are deployed will be depleted and we are going to be in a situation where, with the oil production actually shut in, in Iraq and possibly in Kuwait and maybe even in time in Saudi Arabia, that we are going to be in a crisis the likes of which we have never seen before," Atkinson told CNBC's "Squawk Box Europe."
Asked what this could mean for oil prices, Atkinson replied: "Sorry, we are getting into the realms of educated guesswork here. I mean, there is no precedent for this. The sky is the limit."
Typically, about 20% of the world's oil and gas passes through the Strait of Hormuz, but shipping traffic has all but halted through this key maritime corridor since the war started.
G7 emergency meeting
Oil prices came off their session highs on Monday shortly after the Financial Times reported that finance ministers from G7 economies would hold an emergency meeting on Monday to discuss a possible joint release of petroleum from reserves coordinated by the IEA.
The U.K.'s Treasury and French government confirmed to CNBC that the call would take place on Monday.
Tyler Goodspeed, chief economist at ExxonMobil, told CNBC's "Squawk Box Europe" on Monday that it had been "consensus last week, and to a certain extent still today," that everyone but Russia had "an interest in normal traffic resuming through the Strait of Hormuz."
He added the consensus had been that there was "abundant oil on the water and some strategic reserves to cover any short-term gap." Goodspeed said he was skeptical of this view as the conflict enters its second week.
"When I think of the probability distribution of possible outcomes here, it seems to me there are many more scenarios, and more probable scenarios, in which the strait remains effectively closed harder for longer than there are scenarios in which normal traffic resumes," Goodspeed said.
Production shut-ins
Brent crude futures could climb to $135 per barrel if the current situation persists for four months, according to Janiv Shah, vice president of oil markets at Rystad Energy.
"The forward-looking analysis we've done on a two-month basis is also showing prices stay above $110 per barrel, given the current conditions," Shah said Monday in a research note.
"The market is currently grappling with physical supply being choked off by drone strikes, while Middle Eastern producers are simultaneously hitting a critical point where they must shut in production simply because there is nowhere left to put the oil," he added.
Analysts at Societe Generale on Monday warned that prolonged production shut-ins from Middle East countries "materially increase" the risk of restart complications.
"The UAE is likely the next producer at risk of shutting in output, potentially within the next five to seven days," the analysts said in a research note.
"Qatar is also vulnerable, though its oil volumes are modest relative to its LNG exposure. Saudi Arabia faces less immediate risk but shut ins would become plausible if the Strait of Hormuz remains closed for a further two to three weeks," they added.
— CNBC's Holly Ellyatt contributed to this report.