Oil prices jumped sharply on Thursday as fears grew about global oil supplies. The main concern is that attacks on oil tankers in the Strait of Hormuz are reducing the number of ships using the important waterway. The rise in attacks has increased worries about whether enough oil can reach global markets.
Brent crude, the global oil benchmark, rose 4.3% to $104.48 a barrel early Thursday. This pushed oil above the $100-a-barrel level again. CNN reported that US benchmark West Texas Intermediate (WTI) also climbed about 4.3% to $92.05 a barrel.
Oil shipments through Hormuz fall
The number of tankers crossing the Strait of Hormuz has fallen sharply. Only seven tankers crossed the strait on Tuesday. That was less than half the average number of crossings over the previous seven days and was the lowest level since July 23, according to Kpler data.
The fall in tanker traffic is important because the Strait of Hormuz is a major route for global oil shipments. Fewer ships using the route raise concerns that oil supplies could be delayed or disrupted.
Tanker attacks hit oil supply
The biggest reason for the lower tanker traffic is a rise in attacks on commercial vessels. There were 10 tanker attacks in the Strait of Hormuz between September 28 and October 4, according to Kpler.
The 10 attacks were a record weekly number. Kpler said the previous weekly high was six tanker attacks, meaning the latest figure was significantly higher.
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The attacks are happening even though more crude oil has been leaving the Gulf. This shows that the problem is not simply a lack of oil production. There are also growing concerns about the safety of ships, crews and their cargoes, according to CNN.
New attack raises oil fears
A new tanker attack was reported on Wednesday. The tanker said it had been hit by multiple projectiles, and there were casualties, according to the UK Maritime Trade Operations agency.
The latest attacks are making the oil market more nervous about future supplies. If fewer tankers are willing or able to pass through the Strait of Hormuz, oil deliveries could become more difficult and expensive, putting upward pressure on prices.
Hurricane Isaias threatens US oil
Hurricane Isaias is adding another supply risk for the US. The storm is moving toward the Gulf Coast, home to a major part of America’s oil and refining industry. CNN reported that concerns about possible production losses also helped push oil prices higher.
Shell, Chevron cut production
Oil companies are already taking steps because of Hurricane Isaias. Oil majors Shell and Chevron said they would reduce production in the region and evacuate nonessential workers.
That creates a second supply concern for the oil market. While tanker attacks threaten the movement of oil through the Strait of Hormuz, Hurricane Isaias could affect oil production and refining operations along the US Gulf Coast.
Europe faces higher energy costs
The oil price rise is also affecting other energy markets. European natural gas and diesel prices increased as oil prices climbed, adding to concerns about higher energy costs.
Higher energy prices are raising fresh inflation fears in Europe. Europe depends heavily on imported energy, so a rise in oil, gas and diesel prices can increase costs for businesses and consumers.
European gas and diesel prices rise
The energy shock is also hurting European bond markets. Rising energy prices contributed to a renewed selloff in European bonds.
European natural gas prices also moved higher on Thursday. Prices came close to their recent high from mid-September before falling back later in the day, according to CNN.
European diesel prices have also jumped. ICE Gasoil Futures, a key benchmark for European diesel prices, closed 6% higher on Wednesday.
IEA releases more emergency oil
A decision by the International Energy Agency added to concerns about diesel supplies. The IEA said its member governments would not increase the amount of oil they had already agreed to release from emergency reserves in March.
Governments had agreed to release 400 million barrels of oil in March. So far, about 325 million barrels have been released, according to the IEA.
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Around 100 million more barrels are still expected to enter the market. The IEA said this remaining amount includes diesel supplies that G7 countries agreed to release last week.
The IEA said it will speed up those remaining releases. The agency said it would “accelerate” the release of the roughly 100 million barrels still due to reach the market.
IEA has huge oil reserves
The IEA says countries still have large emergency oil reserves available. Member governments have publicly held emergency stocks equal to about 1.1 billion barrels of oil, according to the IEA.
More than 200 million barrels of those emergency stocks are diesel. This means governments still have a large amount of emergency energy supplies that could potentially be used if the global market faces further disruption.
The IEA has also kept open the option of releasing more oil. The agency said it is ready to put more emergency stocks into the market if and when they are needed.
US gas prices remain steady
US fuel prices have not yet jumped as sharply as global oil prices. The average US diesel price at gas stations was $6.28 a gallon on Thursday, slightly lower than the previous day.
US regular gasoline prices were unchanged from the previous day. The average price remained at $4.36 a gallon, according to AAA.
Oil market watches Hormuz, hurricane
The bigger concern for markets is what happens next. Continued tanker attacks in the Strait of Hormuz could further reduce oil shipments, while Hurricane Isaias could cause additional production losses in the US.
Together, the two events are increasing fears of a tighter oil market. The Hormuz attacks threaten the transport of oil, while the hurricane threatens US production and refining, creating separate risks to supply.
That combination explains why oil prices have moved above $104 a barrel. Traders are worried that continued disruptions could reduce the amount of oil reaching markets at a time when energy prices are already under pressure.
For now, the market is closely watching both the Strait of Hormuz and Hurricane Isaias. Any further tanker attacks, a bigger fall in shipping traffic, or more production shutdowns on the Gulf Coast could put additional upward pressure on oil prices.