Brent crude rocketed to $126 per barrel overnight, marking the steepest climb since the Iran conflict escalated, before retreating to $114 by Thursday morning. West Texas Intermediate, the U.S. benchmark, held around $104 a barrel as markets grappled with the reality of sustained supply disruptions in the Persian Gulf.
The spike is already hammering American drivers. Gasoline averaged $4.30 a gallon on Thursday morning, up more than 7 cents from the previous day and far above the $3.18 per gallon cost from a year earlier, according to AAA data.
Traders are pricing in two converging pressures: the likelihood of a prolonged standoff that keeps the Strait of Hormuz constrained, and the risk of further military escalation. President Trump is scheduled to receive a briefing Thursday on new proposals for potential military action against Iran, raising questions about how investors should hedge their bets.
Analysts at ING pointed to a fundamental market shift. "The oil market has moved from over-optimism to the reality of the supply disruption we are seeing in the Persian Gulf," Warren Patter and Ewa Manthey wrote in a research note. The collapse of U.S.-Iran negotiations, combined with Trump's rejection of Iran's latest offer regarding the Strait of Hormuz, has "the market losing hope for any quick resumption in oil flows," they added.
Technical factors are also amplifying price swings. The expiration of June Brent futures contracts on Thursday added another layer of volatility as traders repositioned ahead of the deadline.
Behind the scenes, U.S. officials are working to assemble an international coalition aimed at securing safe passage through contested waters, according to reporting from the Wall Street Journal. Whether such efforts can ease tensions remains uncertain, leaving oil markets stuck between fear of prolonged disruption and hope for diplomatic off-ramps.
Author James Rodriguez: "When crude rockets past $126 and gas prices jump this fast, you're watching the market price in worst-case scenarios that policy makers haven't fully managed yet."
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