Oil Prices Reach 2022 High of $120 per Barrel Amid US Escalation of Pressure on Iran

Global Oil Prices Surge as US Imposes Pressure on Iran

Oil prices have climbed to their highest level in almost four years, with Brent crude trading near $120 a barrel after a 6% jump to its highest level since June 2022 on Wednesday. West Texas Intermediate futures were above $107, as the US continued to ramp up pressure on Iran, signaling no letup in its naval blockade.

The US is seeking the forfeiture of two Iran-linked oil tankers that were seized by naval forces enforcing the blockade, as American authorities try to squeeze buyers of Iranian crude. The US military has also requested the deployment of hypersonic missiles to the Middle East, a move that would mark the first time the country has deployed those weapons. The Strait of Hormuz has been effectively closed since the war started at the end of February, choking off flows of crude, natural gas, and oil products, and driving up energy prices.

The US Pressure on Iran

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US President Donald Trump has told Axios that he will not lift the naval blockade of Iran's ports until he secures a nuclear agreement with Tehran, while Iranian officials have shown no signs of backing down. The US is expanding its pressure on Tehran by seeking the forfeiture of two Iran-linked oil tankers that were seized by naval forces enforcing the blockade. The US military has also asked for hypersonic missiles to be sent to the Middle East.

US crude exports surged to a record last week as global buyers tapped American producers for barrels to replace lost supply from the Middle East. Overseas shipments rose above 6 million barrels a day, eclipsing a previous high of nearly 5.3 million set in late 2023.

Market Metrics

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Some market metrics pointed to a tightening supply with the difference between Brent's two closest December contracts strengthening to over $10 a barrel compared to around $3 two months ago. Trading volumes are thin for Brent's June contract, which is set to expire at the end of the session. The more-active July futures advanced above $111 a barrel after also closing at the highest since June 2022 on Wednesday.

International Response

The International Energy Agency has called the conflict in the Middle East the biggest supply shock in history, and Vitol Group says the market is facing a supply loss of around 1 billion barrels. The US has turned away dozens of ships since the start of its blockade on April 13. The Trump administration is now asking other countries to join an international coalition that would enable ships to navigate the Strait of Hormuz, according to a report from the Wall Street Journal.

Market Reaction

The market reaction to the US pressure on Iran has been significant, with some market metrics pointing to a tightening supply. "It feels like a day of reckoning," said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, referring to the price gains on Wednesday. "The paper market is catching up to the physical, which has already started to reflect tighter balances and delayed flows."