Oil surges to $119 as Iran war disrupts Strait of Hormuz
Major producers cut production as Middle East conflict blocks 20% of global oil supply, driving exploration stocks higher
Crude oil prices surged to $119 per barrel on Monday as the escalating conflict involving Iran severely disrupted shipping through the Strait of Hormuz, triggering a broad rally in oil and gas exploration and production stocks.
West Texas Intermediate crude briefly touched highs of $119.43 on March 9, while Brent crude reached $119.46, representing a 25% spike from Friday's settlement price of $92.69. The dramatic price increase follows a U.S.-Israeli military campaign that began February 28, prompting Iranian retaliation that has effectively closed the strategic waterway through which approximately 20% of global oil and liquefied natural gas supplies typically flow.
The conflict has triggered widespread production shutdowns across the Middle East. Saudi Aramco began cutting output at two oilfields and suspended operations at its Ras Tanura refinery. Kuwait Petroleum Corp. has cut production and declared force majeure, while Abu Dhabi National Oil Co. is actively managing offshore output. Iraqi production from southern fields has fallen by 70%, and QatarEnergy halted LNG operations at its main facilities.
The supply shock has propelled major oil producers higher. Exxon Mobil, which has surged approximately 9% from early February lows, is trading at $151.56, well above its 50-day moving average of $138.06 and 200-day average of $118.57. Chevron has climbed 23% over the past 12 months, with shares trading near $190 after reaching an all-time high closing price of $189.94 on March 6.
"Geopolitical shocks can quickly override domestic energy strategies," noted analysts, highlighting that the Strait of Hormuz disruption represents the biggest oil supply disruption in history, according to Rapidan Energy. The global oil market will need to balance by destroying demand through sharply rising prices.
G7 nations are reportedly considering a coordinated release of 300 million to 400 million barrels from strategic petroleum reserves, which collectively hold about 1.2 billion barrels. However, with global oil demand at around 100 million barrels per day, even a large release might only offer temporary relief. War risk insurance for vessels in Gulf waters has been cancelled by major marine insurers, further constraining shipping capacity despite U.S. assurances of naval escorts.
Analysts have warned that prolonged disruption could push crude prices even higher, with some scenarios suggesting $150 per barrel if the Strait remains blocked. Goldman Sachs estimated a $14 risk premium per barrel as of March 3 due to heightened risks. For now, oil and gas exploration companies stand to benefit from the supply crunch, with wider margins between extraction costs and realized prices bolstering earnings profiles for the sector's major producers.