24-Hour Bull and Bear Switch! After Crude Oil Plunged Over 30%, What's Next?

On Monday, international oil prices experienced a historic rollercoaster.

In the early trading session, there were no signs of easing related to Iran conflicts, and more major oil-producing countries began reducing output. U.S. WTI crude once surged by 30%, approaching $120 per barrel. Subsequently, under discussions among G7 finance ministers about potentially releasing oil reserves in coordination with the International Energy Agency, and comments from U.S. President Trump suggesting the war might end, oil prices gradually gave back all gains and turned lower. WTI crude briefly dipped to the $80 mark, entering a technical bear market.

Key Reversal

According to CCTV News, U.S. President Trump stated on Monday, “I think this war is basically over, almost done. They no longer have a navy, communication systems, or air force.” Trump also said that the progress was “much faster” than his initial estimate of 4 to 5 weeks.

Following Trump’s remarks, international oil prices fully retraced their intraday gains.

Meanwhile, to stabilize the market, French President Macron, current G7 chair, said on Monday that considering the surge in energy prices, using strategic reserves is an option worth considering. Oil prices quickly retreated from their highs.

According to CCTV News, G7 finance ministers issued a statement on March 9, saying that all parties are prepared to take necessary measures, including releasing reserves, to support global energy supply. On that day, G7 finance ministers held a video conference with officials from the International Monetary Fund, World Bank Group, Organisation for Economic Co-operation and Development, and International Energy Agency to discuss the current Middle East conflict. The statement noted that all parties will continue to closely monitor the situation and energy market developments, and will hold further meetings if necessary to exchange information and strengthen coordination among G7 and international partners.

It is reported that the International Energy Agency is considering releasing about 25% to 30% of its total reserves, approximately 300 to 400 million barrels. This would be the largest release since the agency’s establishment.

Since the reserve mechanism was created in 1974, there have been five such releases. The most recent two occurred shortly after Russia’s invasion of Ukraine in February 2022. The agency stated that the April 2022 release was the largest ever, totaling 120 million barrels.

Boris Schlossberg, macro strategist at BK Asset Management, told First Financial that Trump’s decision might be driven by the realization that if high oil prices persist for months rather than weeks, it could severely impact the U.S. and global economies, trigger a new round of inflation, and influence Federal Reserve rate cuts and midterm elections.

24 Hours of Turmoil

In Monday’s Asian markets, oil prices broke through $110 per barrel, reaching a new high since 2022. According to Dow Jones market data, WTI crude surged nearly 36% last week, the largest weekly increase in history, while global benchmark Brent crude rose 27%, also marking its best weekly performance on record.

Market panic was triggered by near-closure of the Strait of Hormuz and insufficient oil storage capacity. Kuwait Petroleum announced last Saturday that it had implemented precautionary reductions in oil production and refining, becoming the latest regional producer after Iraq and Qatar to cut output.

Meanwhile, storage levels at major oil facilities in Saudi Arabia and the UAE rose rapidly, with both countries’ storage capacity expected to reach saturation soon. Additionally, Israel attacked four oil storage facilities in Tehran, Iran, sharply worsening the regional supply outlook.

Concerns quickly spread to the refined oil markets, with awareness that the most impacted supplies would be diesel and jet fuel.

Warren Patterson, head of commodities strategy at ING, said, “With oil-producing countries halting production and no signs of easing the situation, the market has to price in long-term supply disruptions. Even if the Strait of Hormuz reopens, upstream capacity recovery will take time.”

Market Recovery Still Requires Time

Oil prices have far-reaching impacts on the global economy, affecting gasoline, jet fuel, utilities, manufacturing costs, inflation, consumer spending, and employment.

Katie Cummingski, chief research strategist and portfolio manager at AlphaSimplex, said rising oil prices will push up inflation, weaken consumer purchasing power, and slow economic growth. High inflation, in turn, complicates monetary policy decisions and directly affects economic growth and employment.

However, some market analysts warn that if the Hormuz Strait shipping blockade cannot be quickly resolved within one or two weeks, even with strategic oil reserves released, oil prices could still break $130 per barrel. Giovanni Stonovo, strategist at UBS, said, “Limited options like releasing strategic reserves are insufficient compared to the supply gap caused by the long-term closure of the Strait of Hormuz. If shipping cannot resume normally, oil prices will continue to rise until demand is suppressed.”

Kpler, a commodities data analytics firm, estimates that even if shipping resumes, it will take at least one to two weeks for tankers to re-enter the Persian Gulf, load from inventories, and restart oil fields. During this period, refiners are expected to increase procurement from other regions, which could significantly widen the price gap between WTI and other regional crude oils.

Schlossberg told First Financial that looking back at oil price trends after the Russia-Ukraine conflict four years ago, the market only peaked about a month after the International Energy Agency’s stockpiling, due to multiple sanctions on Russia and OPEC+’s reluctance to increase production. He believes that if the U.S., Israel, and Iran can reach quick consensus, this time’s oil prices might stabilize and decline faster than in 2022. However, the development of the situation remains uncertain, especially whether the U.S. government can exit this conflict smoothly. The attitude of Iran, which has just confirmed new leadership, is crucial, as is the stability of the Strait of Hormuz.

(Original source: First Financial)