Will the international oil price breaking $100 become the "benchmark scenario"?

On the evening of the 12th, due to the tense Middle East situation, international oil prices continued to rise. WTI April crude futures closed at $95.73 per barrel, up 9.72%, while Brent May crude futures gained 9.2%, closing at $100.46 per barrel, marking the first time since August 2022 that it closed above the $100 psychological level. As of the 13th, at the time of First Financial News’ reporting, WTI crude was at $95.65 per barrel, and Brent was at $100.34 per barrel.

Will crossing the $100 mark become the “benchmark scenario” for future oil prices?

UBS Wealth Management’s Chief Investment Office (CIO) stated in a report this week: “Although Saudi Arabia has transported more crude oil through the East-West pipeline to the Red Sea port of Yanbu, if the Strait of Hormuz remains closed, more oil-producing countries are expected to be forced to halt production. Concerns over tight supply could trigger stockpiling behavior, further increasing oil price volatility, and prices may continue to rise until demand eases. It is important to note that if the conflict ends quickly and oil transportation resumes normally, prices could also fall rapidly. However, since restoring production and exports will take time, short-term prices may still remain above pre-conflict levels.”

Li Huiqi, macro strategist at UBS Wealth Management’s CIO office, told First Financial News: “In a pessimistic scenario, if by the end of March the shipping through the Strait of Hormuz shows no significant signs of recovery and Middle Eastern oil producers are forced to further cut production due to storage capacity limits, international oil prices are very likely to break through and stay above $100.”

She summarized three potential paths for U.S. government intervention in oil prices: releasing strategic petroleum reserves (SPR), boosting shale oil production, and diplomatic coordination.

How long can 400 million barrels of strategic reserves last?

The International Energy Agency (IEA) announced it would release 400 million barrels from strategic reserves.

“This is the largest reserve release in history, sending a positive signal. Based on our estimates, the daily supply shortfall in the Gulf region caused by geopolitical conflict is about 15 million barrels. Calculations suggest that the released reserves could offset supply disruptions for approximately 20 to 25 days,” Li Huiqi said. “Therefore, while reserve releases can address urgent needs and temporarily ease market volatility, if geopolitical conflicts continue to damage capacity facilities, relying solely on reserve releases will not achieve long-term market stability. The future market trend still heavily depends on the progress of reopening the Strait of Hormuz and the actual production performance of major oil-producing countries.”

On the 12th, the IEA updated its monthly report, estimating that global oil supply would decrease by about 8 million barrels per day this month, totaling nearly 250 million barrels of lost supply. The IEA also forecasted a sharp decline in transportation through the Strait of Hormuz. Data cited by the IEA shows that last year, about 20 million barrels per day of crude oil and refined products were transported through the strait, but current throughput has dropped by over 90%.

Li Huiqi emphasized that the Strait of Hormuz is a critical global oil transportation bottleneck. It accounts for about 20% of daily global oil shipping, and most exports of crude oil and natural gas from Middle Eastern countries like Saudi Arabia, Kuwait, and the UAE depend heavily on this route. For Asian energy security, this passage is especially vital; for example, over 90% of Japan’s and more than 80% of South Korea’s crude oil imports are transported through this strait.

“Currently, the blockade of the Strait of Hormuz not only directly disrupts physical trade but also indirectly forces Middle Eastern oil producers into production cuts. Due to limited physical storage capacity in countries like Saudi Arabia and Kuwait, if exports are blocked, oil inventories will quickly accumulate. When inventories reach critical saturation, producers will have to reduce output to cope,” she explained. Currently, Saudi Arabia, Iraq, the UAE, and Kuwait have announced production cuts totaling over 6.7 million barrels per day, about one-third of their total capacity. Li Huiqi expects that as the blockade prolongs, the scale of production cuts will likely increase further.

IEA Director Fatih Birol also stated on the 11th that the most important way forward is to “restore the passage through the Strait of Hormuz.”

Additionally, reports indicate that some Middle Eastern oil exporters are exploring options to deliver more cargo to Yanbu port along the Red Sea, located outside the Persian Gulf.

Li Huiqi noted that the Red Sea trade volume accounts for about 8-10% of global maritime oil trade, which means it cannot fully replace the Strait of Hormuz in function. “If the Red Sea terminals, as an alternative, are also deemed unsafe, the global energy market will face further supply shocks, and risk premiums will rise sharply,” she said.

Three potential U.S. intervention paths for oil prices

The U.S. government is attempting to increase intervention in oil prices. On the 12th, sources revealed that as part of efforts to curb soaring prices, the Trump administration plans to suspend the Jones Act. This exemption would allow foreign-flagged ships to help supply fuel from the Gulf Coast and other U.S. regions to East Coast refineries.

Li Huiqi told reporters that facing political pressure from the 2026 midterm elections, the U.S. government has a strong motivation to prevent a prolonged oil price crisis. Currently, political forces including Trump have shown some signals of compromise.

U.S. Treasury Secretary Janet Yellen stated on the 12th that the Navy will expedite escorting commercial ships.

Li Huiqi analyzed that the main paths of possible intervention by the Trump administration include: first, releasing strategic petroleum reserves (SPR), which are currently the largest among IEA members; second, promoting shale oil production, as the shale revolution has transformed the U.S. from an oil importer to a significant exporter; third, diplomatic coordination to seek OPEC’s cooperation to stabilize prices.

However, she also explained that these measures have limitations. “For example, with strategic reserves, there is usually a lag of over ten days from the president’s order to actual physical oil entering the market. Shale oil capacity release is constrained by long production cycles, and with the current implementation of the ‘Big and Beautiful’ Act, fiscal policy space for intervention is very limited. Therefore, we believe the actual upper limit of U.S. government intervention in oil prices is not very high,” she said.

Regarding shale oil capacity release, she added, “Based on current industry observations and relevant data, it typically takes more than three months from increased investment to substantial output growth.” She noted that “high oil prices also transmit to the real economy, reflected in inflation data and consumer spending, often with about a three-month lag. This means if shale oil production cannot respond significantly faster than inflation rises, short-term production interventions may struggle to outpace price increases. Compared to that, releasing strategic reserves is currently a faster response option for the government.”

As for the “TACO” scenario—rapid conflict resolution and political reconciliation—Li Huiqi said that some signs of “TACO” are emerging, but this conflict differs significantly from previous situations like Venezuela or last year’s so-called “reciprocal tariffs.” The key uncertainty lies in Iran’s response.

“Therefore, even if tensions ease, expecting a complete reversal of the situation in the short term is unrealistic. The most likely scenario is that by the end of March, some substantial signs will appear indicating a de-escalation, and energy trade will gradually resume,” she said. The market has already priced in this expectation, with the S&P 500 down only about 3% from pre-conflict levels, and market optimism about SPR releases remains high.

“However, if the conflict prolongs beyond market expectations, a new round of re-pricing could occur. Notably, oil futures for the next three months are still below $100, and since futures best reflect supply and demand expectations, their prices could rise over time,” she warned.

Conversely, if scenarios such as the safe reopening of the Strait of Hormuz occur, risk premiums will quickly decline. Both scenarios are currently possible, she concluded.