International Energy Agency (IEA) Executive Director Fatih Birol has issued a warning that commercial oil inventories are being drawn down at an accelerating pace. Speaking to journalists on the sidelines of the G7 finance ministers' meeting in Paris, he stated, "I think it is depleting very fast," echoing comments from last week. He noted this would take "a few weeks, but we should be aware of the fact that it is declining rapidly."
He further emphasized that the surge in fertilizer and diesel prices coincides with the start of the travel and planting seasons. "This could have a significant impact on food prices, and combined with higher energy prices, they could provide a huge boost to inflation numbers," Birol said.
Earlier on Monday, French Finance Minister Roland Lescure, who chaired the G7 meeting, told media that strategic reserves had been released once several months ago and indicated, "if necessary, we will do it again in the future."
Oil prices climbed toward $110 per barrel, with Brent crude surpassing $110 and WTI crude rising above $107 during Monday's Asian trading session. This marks the third consecutive day of gains for international oil benchmarks. The rally is driven not only by the shipping crisis in the Strait of Hormuz, ongoing for over a month, but also by a complete stalemate in core disagreements within the US-Iran ceasefire talks, the expiration of sanctions waivers for Russian oil, and heightened geopolitical risk premiums following drone attacks on Gulf energy facilities over the weekend.
As of the latest update, WTI crude was up nearly 1.75% to $107.26 per barrel, while Brent crude rose 1.71% to $111.13 per barrel, having earlier touched its highest level since May 5th. Both contracts recorded weekly gains exceeding 7% last week.
The catalysts for this latest surge are numerous and overlapping. First, over the weekend, the UAE's sole nuclear power plant was targeted by a drone attack. Three drones entered from the western border region shared with Saudi Arabia; two were intercepted, while the third struck a generator outside the internal security perimeter of the Barakah plant, causing a fire. Although there was no nuclear radiation leak or casualties, the UAE foreign ministry labeled the incident a "baseless terrorist attack" and asserted the country's "full right" to respond. Simultaneously, Saudi Arabia intercepted three drones entering its airspace from Iraq and warned it would take "necessary action measures" in response to any violation of its sovereignty.
Second, the previous US administration formally allowed the sanctions waiver for seaborne Russian crude oil to expire over the weekend without issuing any renewal notice, ending a two-month exemption period. This decision "effectively, for now, ends a brief period of US relaxation of some energy sanctions on Russia." Despite ongoing lobbying by energy-import-dependent nations like India and Indonesia for an extension, no renewal notice had been published on the US Treasury Department's website as of the latest update.
Third, and more fundamentally, the US-Iran ceasefire negotiations have reached a deep impasse. Over five weeks have passed since the April 7th ceasefire began, with little progress on key issues such as the disposition of uranium enrichment, sanctions relief, war reparations, and control of the Strait of Hormuz. The former US President stated clearly on social media on Sunday: "For Iran, time is ticking away, they better move fast, or they will get nothing." He added that the US wants a deal but Iran "has not reached the level we want."
Faced with a systemic tightening of supply, major investment banks have recently raised their oil price forecasts. Goldman Sachs increased its year-end target for Brent crude to $115 per barrel, while JPMorgan Chase predicted that under an extreme scenario of prolonged Strait of Hormuz disruptions, oil prices could surpass $150 per barrel.
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