Global oil prices extended gains Monday, taking crude to the highest levels in four months, as investors reacted to the potential for reprisal attacks on tankers and facilities in the Gulf region following last week's U.S.-ordered killing of a key Iranian military commander in Iraq.
President Donald Trump's order to kill Major-General Qassem Soleimani, who lead the Quds Force of Iran's Revolutionary Guards, last week has already triggered moves to expel U.S. and anti-ISIS coalition forces from Iraq and elicited threats of "severe revenge" from Tehran. Global oil prices have risen more than 6% since Soleimani's killing in the early hours of Friday amid both the rising regional tensions and the threat of reprisal attacks on oil installations in the Gulf region or the choking off of supplies that pass through the nearby Strait of Hormuz.
"Any significant disruption in the Middle East could tighten the global balance sheet fairly quickly, and it wouldn’t take too much to eat into the 900 million barrels per day surplus that we currently forecast over the first half of 2020," said ING's head of commodity strategy Warren Patterson. "However, saying that, if the Iranians attempted to block oil shipments through the Strait of Hormuz, the Saudis could increase oil flows through their East-West pipeline, and ship from the Red Sea instead."
Any significant and sustained disruption would likely mean the end of the OPEC+ deal to cut production by 1.7 million barrels per day, with members wanting to ensure adequate supply for the market," Patterson added. "There is also the potential for emergency releases from government stocks. President Trump would want to avoid higher oil prices, particularly in an election year, and so we could see releases from the US Strategic Petroleum Reserves, which currently stands at around 635 million barrels per day."
Brent crude futures contracts for February delivery, the global benchmark for crude prices around the world, have risen more than 6% since Friday, and were last marked 83 cents higher from Friday's closing levels and changing hands at $69.43 per barrel, after trading above $70 earlier in the session.
WTI contracts for February delivery, which are more tightly linked to U.S. gasoline prices, were seen 63 cents higher $63.64 per barrel in early New York trading.
U.S. pump-gas prices, in fact, have risen nearly 2.4% since Christmas Eve as global crude markets closed their biggest annual increase since 2016 last year, driven by improving U.S.-China trade prospects, a carefully brokered agreement on production cuts between OPEC cartel members and key allies such as Russia, and ongoing military and political tensions in the Gulf region.
Another notable impact from the killing of Soleimani and the political instability that's followed is the extended decline of shares in Saudi Aramco, the world's biggest oil company, which have fallen some 11% since their IPO debut on December 11.