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- Oil prices surged past $119 a barrel due to U.S.-Israeli conflict with Iran.
- Major producers cut supplies amid fears of prolonged shipping disruptions in Hormuz.
- Saudi Aramco and others reduced output; strategic reserves may be tapped, analysts say.
LONDON — Oil prices surged to more than $119 a barrel on Monday, hitting levels not seen since mid-2022, as some major producers cut supplies and fears of prolonged shipping disruption gripped the market due to the expanding U.S.-Israeli war with Iran.
Brent crude futures were up $8.77, or 9.46%, at $101.46 per barrel at 1339 GMT, while U.S. West Texas Intermediate (WTI) crude futures were up $7.92, or 8.71%, at $98.82.
In a whiplash session, Brent had earlier hit a high of $119.50 a barrel, indicating its biggest-ever absolute price jump in a single day, and WTI reached $119.48 a barrel.
Brent has surged as much as 66% and WTI 77% since their last close before U.S. and Israel Feb. 28.
Monday's prices compare with all-time highs of around $147 a barrel for the contracts in 2008, according to LSEG data going back to the 1980s.
Market structure indicates intense supply shortages
The premium of front-month loading Brent contracts over contracts for delivery in six months' time surged to an all-time high on Monday of almost $36, according to LSEG data going back to 2004.
That was well above its previous summit of around $23 in March 2022 in the early weeks of the Russia-Ukraine war.
This premium indicates a market structure known as backwardation, showing traders see intense current supply shortages.
The Strait of Hormuz, through which roughly one-fifth of the world's oil and liquefied natural gas typically passes, is virtually shut.
Also boosting prices is the appointment of Mojtaba Khamenei to succeed his father Ali Khamenei as Iran's supreme leader, signaling that hardliners remain firmly in charge in Tehran a week into its conflict with the U.S. and Israel.
The war could leave consumers and businesses worldwide facing weeks or months of higher fuel prices even if the conflict ends quickly, as suppliers grapple with damaged facilities, disrupted logistics and elevated risks to shipping.
U.S. gasoline contracts surged to their highest since 2022 at around $3.22 a gallon at a time when President Donald Trump has told U.S. consumers the impact on their cost of living would be limited ahead of mid-term elections in November.
"Alternatives are limited, such as tapping strategic oil reserves, but in comparison to the potential magnitude of the supply disruption if the Strait stays closed longer, they are a drop in the ocean," said UBS analyst Giovanni Staunovo.
Senate Democratic Leader Chuck Schumer has called on Trump to release strategic petroleum reserves, and a French government source said on Monday that the Group of Seven nations would also discuss this.
Saudi Aramco starts cutting production, sources say
Saudi Aramco has begun cutting output at two of its oilfields, sources said. Analysts said last week they expected OPEC heavyweights, including the United Arab Emirates, to have to cut production soon as they run out of oil storage.
Iraqi oil production from its main southern oilfields has fallen by 70%, sources said, with crude storage having reached maximum capacity.
The Kuwait Petroleum Corporation also began cutting oil output on Saturday and declared force majeure on shipments, though it did not say how much production it would shut.
Saudi Aramco, which can divert some flows via the Red Sea port of Yanbu, has offered more than 4 million barrels of Saudi crude in rare tenders to counteract Hormuz being shut.
In gas markets, giant LNG exporter Qatar had already stopped production after attacks on key infrastructure.
A fire broke out in the UAE's Fujairah oil industry zone, resulting from falling debris, with no injuries reported.
Refinery disruptions add to fuel supply cuts, with Bahrain's BAPCO announcing a force majeure following a recent attack on its refinery complex. Saudi Arabia has already shut its biggest oil refinery.
Contributing: Enes Tunagur, Yuka Obayashi, Sudarshan Varadhan, Rae Wee and Tim Gardner, Reuters
