Millions of barrels of oil have been effectively removed from global markets by the Iran conflict, and US oil prices are staying high as a direct result as the war enters its third week. Analyst Patrick De Haan projects Monday pump prices of $3.80 to $3.85 per gallon, while $4 gasoline remains within reach. The sheer volume of oil removed from global supply by the combination of infrastructure strikes and the Hormuz blockade has created a price environment that will not normalize quickly.
The removal of supply from global markets began on February 28 when the US and Israel launched strikes on Iran, triggering a chain of events that has progressively widened the gap between available supply and global demand. From below $3 per gallon before the conflict, the national average has risen 23% to $3.70, driven by the supply shortfall created by three weeks of military operations. The volume of oil removed from markets by the Hormuz blockade alone represents one of the most significant peacetime supply disruptions in recent history.
The US strike on Kharg Island last Friday removed additional supply capacity from global markets by targeting Iran’s most important oil processing and export hub. Iran’s continuation of the Strait of Hormuz blockade has kept roughly 20% of global daily oil supply away from international buyers. Brent crude traded between $103 and $106 per barrel Monday, while US crude held near $94 following a brief Sunday surge to $100.
California has experienced the most extreme domestic price increases, with average pump prices above $5 per gallon and some Los Angeles stations charging over $8. Diesel for commercial freight could reach $5.15 per gallon across the US. The leaders of Exxon, Conoco, and Chevron have all warned White House officials about the growing supply deficit, with Exxon CEO Darren Woods specifically flagging the risk that speculative traders will amplify the price impact of physical supply shortfalls.
Wall Street started the week on a positive note, the S&P 500 gaining about 1% as crude prices briefly softened. Oil company stocks have reached record highs since the conflict began. Until the millions of barrels per day removed from global markets by the conflict can be restored through either a reopening of the Hormuz or alternative supply sources, US oil prices will remain elevated.