Key Moments
- Brent and WTI initially surged more than 20% to USD 120 per barrel at the start of the week before retreating from those gains.
- G7 finance ministers decided against an immediate release of strategic oil reserves, despite concerns about disrupted Gulf supplies.
- Potential U.S. shale output growth hinges on sustained high prices, which could quickly reverse if Strait of Hormuz shipments resume.
Strait of Hormuz Risks Drive Price Swings
Commerzbank analyst Carsten Fritsch notes that both Brent and WTI have unwound an early surge tied to the outbreak of war, emphasizing that the conflict involving Iran and the threat of a Strait of Hormuz blockade continue to be the dominant forces shaping the oil market. He points out that although G7 strategic reserve releases and ample OECD inventories might cushion the impact of reduced Gulf exports, such measures would only provide short-lived relief.
“Oil prices experienced a rollercoaster ride at the beginning of the week. At the opening of trading on Monday, they rose by more than 20% to USD 120 per barrel, the highest level since June 2022. Over the course of the day, prices largely gave up their gains.”
Strategic Reserves: Limited and Conditional Support
Fritsch underscores that tapping government-controlled crude stocks could help bridge supply gaps until flows through the Strait of Hormuz can resume. However, he questions the lasting impact of this tool if the waterway remains blocked for an extended period.
“Releasing oil from strategic reserves could temporarily cover the supply shortfall until transporting oil through the Strait of Hormuz becomes possible again. However, it is questionable whether releasing strategic oil reserves would have the same price-dampening effect as it did four years ago if the Strait of Hormuz remains closed for an extended period of time. During yesterday’s consultations, the G7 finance ministers decided against an immediate release.”
U.S. Shale Response Depends on Price Durability
On the supply side, Fritsch highlights that higher prices since the start of the war have improved the economics for U.S. shale producers, theoretically allowing for increased production. Still, he cautions that producers need confidence that elevated prices will persist long enough to justify additional drilling.
“A larger expansion would theoretically be conceivable in the United States because the significant rise in oil prices since the start of the war has made drilling for shale oil lucrative again. However, shale oil producers must also be certain that oil prices will remain high enough for several months. This is by no means assured, because oil prices are likely to quickly shed the gains they have made since the beginning of the month if oil supplies through the Strait of Hormuz resume.”
Market Focus: Restoring Safe Passage Through Hormuz
Fritsch concludes that the discussed policy tools and supply responses cannot fully compensate for a prolonged disruption to transit through the Strait of Hormuz. In his view, the market ultimately hinges on restoring secure and reliable shipping through this critical route.
“The measures discussed cannot adequately replace the prompt resumption of oil shipments through the Strait of Hormuz. Efforts should therefore focus primarily on making this transport route safe to navigate again as quickly as possible.”
Price and Policy Snapshot
| Aspect | Detail |
|---|---|
| Initial price move at start of week | More than 20% increase to USD 120 per barrel |
| Price development during the day | Gains largely reversed |
| G7 stance on strategic reserves | Decided against immediate release |
| Key structural risk | Potential blockade of the Strait of Hormuz |
| Potential U.S. response | Shale drilling becomes attractive if high prices persist |
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
