Key Takeaways
An Iranian official’s warning that the nation’s military remains on high alert threatens to add more fuel to an oil market already burning hot from geopolitical conflict, with crude prices having nearly doubled in the first quarter.
"The armed forces' hands are still on the trigger," Mohsen Rezaei, a military advisor to Iran's Supreme Leader, said on April 8, according to the state-run CCTV. The statement came even as Rezaei acknowledged that the U.S. had accepted a ten-point proposal from Iran as a basis for negotiations.
The comments feed into a market fraught with supply-side anxiety. Brent crude futures surged from $61 per barrel at the start of the year to end the first quarter at $118 per barrel, the largest inflation-adjusted quarterly increase since 1988. The U.S. average retail gasoline price followed, hitting a two-year high of $3.99 per gallon on March 30.
Continued tension around the Strait of Hormuz, a critical chokepoint for global oil shipments, remains the primary risk. Any further disruption could force major producers like Saudi Arabia, Iraq, and the UAE to curb output further, potentially sending prices well above their first-quarter highs and adding to global inflationary pressures.
The surge in crude oil prices during the first quarter was driven primarily by military action in the Middle East that began on February 28. The de facto closure of the Strait of Hormuz due to the risk of attacks on vessels led to significant production shut-ins and attacks on energy infrastructure. As a result, the price of Brent crude surpassed $100 per barrel on March 12 and continued to climb.
The disruption widened the spread between Brent and West Texas Intermediate (WTI) crude. Brent's exposure to higher shipping costs and reduced flows from the Middle East caused it to rise more sharply than WTI, which was insulated by strong U.S. inventories and planned releases from the Strategic Petroleum Reserve. The spread peaked at $25 per barrel on March 31, its highest in over five years.
The impact has been felt acutely in refined products, with prices for gasoline, diesel, and jet fuel rising sharply. While U.S. retail gasoline prices reached their highest level in real terms in over two years, distillate and jet fuel prices have increased even more significantly.
Several factors have tightened the market for these middle distillates, including increased U.S. exports to Europe to offset sanctioned Russian supply, unusually cold weather in the U.S. Northeast that boosted heating demand, and stronger-than-normal trucking demand. In response to soaring refinery margins for distillate, which hit their highest monthly level since 2022, U.S. refinery utilization exceeded its five-year average for the first quarter.
This article is for informational purposes only and does not constitute investment advice.
