Oil prices jump 4.7%, settle at highest since January 2025 on Middle East conflict

A partially constructed gas refinery at the South Pars gas field is seen on the northern coast of Persian Gulf in Asalouyeh, Iran. (AP Photo/Vahid Salemi, File)

NEW YORK — NEW YORK, March 3 (Reuters) - Oil prices settled up 4.7 per cent on Tuesday, the highest since January 2025, as U.S.-Israel battles with Iran intensified, disrupting energy shipments from the Middle East and stoking fears of a longer conflict.

Brent futures LCOc1 settled up US$3.66, or up 4.7 per cent, at US$81.40 a barrel, its highest settlement since January 2025. U.S. West Texas Intermediate crude CLc1 settled up US$3.33, or 4.7 per cent, at US$74.56, the highest settlement since June.

Brent is up 12 per cent since the conflict began on Saturday.

Israeli and U.S. forces pounded targets across Iran on Tuesday, prompting Iranian retaliatory strikes around the Gulf as the conflict spread to Lebanon.

Iraq, No. 2 crude producer in the Organization of the Petroleum Exporting Countries (OPEC) behind Saudi Arabia, cut production by nearly 1.5 million barrels a day (bpd). The cuts could more than double within days as the country runs out of storage space for crude it cannot export due to the crisis.

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Iran has responded with strikes against regional energy infrastructure and tankers in the Strait of Hormuz, through which a fifth of the world’s oil and liquefied natural gas typically passes.

Tankers and container ships are avoiding the strait after insurers canceled coverage for vessels and global oil and gas shipping rates soared. Concerns increased after Iranian media reported on Monday that Iran will fire on any ship trying to pass through the strait.

“Iran’s retaliation has been broader than its previous, mostly symbolic measures, and its approach has resulted in several regional flashpoints posing real risk to supply,” analysts at Standard Chartered wrote in a note.

President Donald Trump said U.S. and Israeli air attacks were projected to last four to five weeks but could go on longer. Trump said the U.S. was considering oil tanker insurance support.

Brent hit a session high of $85.12, its highest since July 2024. It pared gains after Trump said the war effort has eliminated many Iranian naval and air targets. “Just about everything has been knocked out,” he said, predicting Tehran will eventually lose its capability to lob missiles.

“Trump said Iran is not going to keep this fight up for longer...so the market is thinking there might be a quicker resolution than previously feared,” said Phil Flynn, senior analyst with Price Futures Group.

LOOKING FOR OTHER SUPPLIERS

India and Indonesia said they were seeking alternative energy supplies. In China, some refineries were shutting or bringing maintenance plans forward.

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Since the attacks began, Qatar has stopped liquefied natural gas production, Israel has stopped production at some gas fields and Saudi Arabia shut its biggest refinery.

Saudi oil giant Aramco2222.SE is attempting to reroute some crude exports to the Red Sea to bypass the Strait of Hormuz where the risk of attacks has slowed shipping to a near halt, sources said.

GASOLINE AND DIESEL

U.S. diesel futures HOc1 jumped about 10% to their highest since October 2023. U.S. gasoline futures RBc1 climbed nearly 4% to $2.46 a gallon, their highest since July 2024. Crack spreads CL321-1=R, which measure refining profit margins, soared to their highest since 2023.

In global natural gas markets, benchmark Dutch TFMBMc1 contracts, British gas prices NGLNMJ6 and European and Asian LNG JKMc1 prices all jumped. NG/EU

The premium of Brent over WTI widened to nearly $8 a barrel, its highest since November 2022. Analysts have said that when this premium rises over $4, it can support U.S. crude exports.

In the U.S., traders awaited storage reports from the American Petroleum Institute (API) trade group on Tuesday and the U.S. Energy Information Administration (EIA) on Wednesday. Analysts projected energy firms added 2.3 million barrels of crude to storage during the week ended February 27. EIA/SAPI/SENERGYUSA, ENERGYAPI

(Reporting by Siddharth Cavale and Scott DiSavino in New York, Shadia Nasralla in LondonAdditional reporting by Stephanie Kelly in New York, Anushree Mukherjee in Bengaluru and Emily Chow in SingaporeEditing by David Goodman and David Gregorio)