Oil prices climbed sharply on Thursday, with Brent crude reaching its highest level in four years, as concerns mounted that tensions between the U.S. and Iran could intensify and trigger a prolonged disruption to Middle Eastern supply, threatening global economic growth.
Brent crude futures advanced $4.28, or 3.63%, to $122.31 a barrel by 06:59 GMT, after earlier touching an intraday peak of $126.41 — the highest level since March 9, 2022. The front-month June contract, which was on its ninth consecutive day of gains, was set to expire later in the day. Meanwhile, the more actively traded July contract rose $2.05, or 1.86%, to $112.49.
U.S. West Texas Intermediate futures climbed $1.46, or 1.37%, to $108.34 a barrel, marking their highest level since April 7 and extending a roughly 7% rally from the previous session.
Oil benchmarks extend strong yearly gains
Brent prices have more than doubled since the start of the year, while WTI has gained around 90%. Both benchmarks are on track for a fourth straight month of increases, reflecting persistent fears that the conflict involving Iran could restrict global supply for an extended period, adding to inflationary pressures and heightening the risk of a global slowdown.
Geopolitical tensions drive market concerns
According to a report from Axios, U.S. President Donald Trump is expected to receive a briefing on Thursday regarding potential military strikes against Iran, aimed at pushing Tehran back into negotiations over its nuclear program.
Hostilities between the U.S. and Israel and Iran began on February 28, with air strikes prompting Iran to shut down most shipping through the Strait of Hormuz — a critical route for global energy supplies. Although a ceasefire has temporarily halted active combat, the U.S. has imposed a blockade on Iranian ports.
Efforts to resolve the conflict have stalled, with Washington insisting on addressing Iran’s alleged nuclear weapons ambitions, while Tehran is seeking control over the strait and compensation for war-related damage.
Analysts warn of prolonged disruption
“Prospects for any near-term resolution to the Iran conflict or a reopening of the Strait of Hormuz remain dim,” IG market analyst Tony Sycamore said in a note.
Indications that disruptions may persist have increased after Trump held discussions with oil companies on Wednesday about how to manage the impact of a potential months-long blockade, according to a White House official.
“In the near term, market participants remain focused on the dynamics of the U.S.-Iran conflict and the risk of a prolonged closure of the Strait of Hormuz,” said OANDA senior market analyst Kelvin Wong.
“This focus currently outweighs the long-term implications of the potential waning influence of OPEC+ following the UAE’s (United Arab Emirates) exit from the cartel.”
OPEC+ outlook and supply concerns
Sources told Reuters that the OPEC+ alliance — which includes members of the Organization of the Petroleum Exporting Countries and allied producers — is likely to approve a modest increase of around 188,000 barrels per day in output quotas at its upcoming meeting.
This decision comes shortly after the UAE’s withdrawal from OPEC, effective May 1, a move expected to weaken the group’s ability to manage prices. While the UAE could raise production once exports resume, analysts believe this will have limited impact on supply dynamics in the near term, especially given ongoing disruptions tied to the conflict and the continued closure of Hormuz.
Demand destruction seen as key balancing factor
With supply constraints persisting, analysts are increasingly pointing to demand destruction as the primary mechanism to rebalance the market.
ING estimates that approximately 1.6 million barrels per day of demand could be lost as consumers and businesses reduce usage in response to elevated prices.
Although significant, “it’s clearly not enough to fill the supply gap we are currently facing,” the analysts said in a note.