Oil prices are ripping higher, with Brent oil topping $122 per barrel and logging a sharp 20% weekly surge, according to economist Mohamed A. El-Erian, pointing to escalating Middle East tensions, shrinking global inventories and mounting Gulf supply risks as the key forces driving the rally.
He also warned that volatility may continue, and the rally in oil prices could extend further if those risks intensify.
Oil Spikes 20% In A Week
Erian, on Wednesday's X post, said that Brent oil surpassed $122 per barrel, representing a "staggering 20% increase in just one week."
Erian pointed out the three key drivers behind the latest spike, which are as follows:
Stalemate In The Middle East War
The first is "the stalemate in the Middle East War, with the balance of risk shifting toward escalation."
Earlier on Wednesday, Donald Trump said the blockade would remain in place until Tehran agrees to a nuclear deal, rejecting an Iranian proposal to first reopen the Strait of Hormuz before nuclear talks resume. This has heightened fears of prolonged supply disruptions in the Strait of Hormuz, a critical bottleneck for global oil shipments, sending oil prices higher.
Brent prices surged to their highest levels since mid-2022 and were currently hovering around $124 per barrel at the time of writing. United States Brent Oil Fund (NYSE:BNO), which tracks Brent futures, surged to an all-time high of $58.96 on Wednesday. The fund is up about 24% over the past seven days.
Depletion of Energy Inventories
Energy inventories across Asia and Europe are reportedly being drawn down, leaving less buffer to absorb supply shocks. Lower stockpiles tend to amplify price swings, particularly during periods of heightened uncertainty.
U.S. crude inventories declined 6.233 million barrels to 459.5 million barrels in the week ended April 24, according to the report from the U.S. Energy Information Administration.
Gulf Supply Uncertainties
Third, structural supply concerns in the Gulf region are adding to market unease. Per Goldman Sachs commodity analyst Daan Struyven, April global oil inventories are drawing at 11-12 million barrels per day (mb/d), the fastest pace on record since satellite tracking began. Gulf crude production has collapsed to 11.9 mb/d from a pre-war run rate of 26.4 mb/d — a 14.5 mb/d hit.
More To Follow
Erian also said, "More to follow," signaling the price might continue to spike if macro conditions remain the same.
Chevron CEO Mike Wirth has warned that ongoing tensions in the U.S.-Iran conflict are likely to keep oil prices under “upward pressure,” particularly as disruptions in the Strait of Hormuz continue to threaten supply routes. Wirth highlighted that stockpiles in tanks, ships, and strategic reserves have been significantly reduced, making the market more vulnerable to shocks and price volatility.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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