Middle East Conflict Continues to Roil Oil Markets

The ongoing conflict in the Middle East continues to impact oil markets, causing prices to surge and tumble in response to the latest developments. Despite being a long-standing risk, the closure of the Strait of Hormuz by Iran has been a surprise to many in the market.

Jim Burkhard, head of global energy crude oil research at S&P Global, attributes this volatility to 'surprises' that catch markets off guard. The Strait's closure, which began in February, has resulted in a significant disruption to global oil supply, with Brent oil prices surging over 13% in the immediate aftermath.

Analysts say that about 20 million barrels per day of crude traverse the Strait, roughly a quarter of global oil demand. This 'supply shock' is considered the biggest disruption in history, according to Bob McNally, president of the Rapidian Energy Group and former White House energy advisor to George W. Bush.

The conflict has led to an average Brent oil price of $94 per barrel since the start of the fighting, well below the $150-per-barrel level seen by some experts as possible. Trump's contradictory statements have contributed to this lower price, as the market believes a resolution is near and that 'this crisis can and will end soon', according to McNally.