Shaun
Crude oil prices rose on the Multi Commodity Exchange (MCX) on Monday following the US’s alignment with Israel in military actions targeting Iran’s nuclear facilities, which heightened tensions in the Middle East. Worries are increasing regarding possible disruptions in supply, especially the potential closure of the Strait of Hormuz, a vital passage for worldwide crude transportation.
MCX crude oil futures for July contract opened higher at ₹6,475 per barrel as against its previous close of ₹6,404 level. MCX crude oil prices rallied 2.28% to a high of ₹6,550, and were last trading 1.80% higher at ₹6,519 per barrel. In the global market, prices for Brent Crude Oil surged on Monday to their highest level since January as the U.S. decided to support Israel in military actions against Iran’s nuclear facilities, raising concerns about supply.
Brent crude futures increased by $1.88, or 2.44%, reaching $78.89 a barrel at 1122 GMT. Meanwhile, U.S. West Texas Intermediate crude rose by $1.87, or 2.53%, to $75.71, according to a report from Reuters. Since the conflict started on June 13, Brent has climbed 13%, while WTI has seen an increase of approximately 10%.
Prices increased after U.S. President Donald Trump claimed he had “obliterated” Iran’s main nuclear facilities during strikes over the weekend, in coordination with an Israeli attack, escalating the tensions in the Middle East as Tehran pledged to protect itself.
Iran ranks as the third-largest crude oil producer within OPEC. Market observers anticipate further price increases due to growing concerns that retaliation from Iran could involve closing the Strait of Hormuz, a key passageway for approximately one-fifth of the global crude oil supply.
“Even though the possibility of the closure of Hormuz Strait is a threat, it is important to understand that this has always been only a threat and the Strait had never been closed. The fact is that the closure of Hormuz Strait will harm Iran and Iran’s friend China more than anyone else,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
Price spike driven by geopolitics; oil markets in surplus
According to Kotak Institutional Equities, the recent oil price spike is primarily driven by market worries about the Iran-Israel conflict. While risks have increased on shipping in Strait of Hormuz (SOH), so far there is no impact on supplies. Prior to the conflict, oil markets were well-supplied. Rather, OPEC+’s planned reversal of voluntary cuts was an overhang.
