Oil smashes past $100 as Iran-war market disruption deepens

• Crude oil climbed past $100 a barrel, marking its biggest one-day jump since 2020.
• The Iran war continues to affect crude supply from the region and cripple global oil flows.
• Wall Street strategists have warned that a prolonged breach of $100 could damage the economy.

Oil hitting $100 per barrel was increasingly being bandied about as a possibility after the Iran war started. But it wasn't supposed to happen this quickly.

Oil futures spiked above $100 per barrel when trading kicked off on Sunday evening and continued surging, with Brent crude oil futures and WTI crude gaining about 30% — sending crude to nearly $120 overnight in its biggest one-day jump since 2020.

Traders had already been on edge last week. Then sentiment turned to outright panic after reports that major oil producers Kuwait and the United Arab Emirates had begun trimming output as storage facilities filled up rapidly in the wake of the Strait of Hormuz closure. Iraq, another major producer, started production cuts days earlier.

Prices settled in early-morning Monday trading after the Financial Times reported that G7 ministers and the International Energy Agency are set to discuss a joint release of emergency oil reserves.

Brent was trading around $107 a barrel at 3:07 a.m. ET on Monday, while WTI was around $102 a barrel. Prices of both grades have nearly doubled this year.

Since the start of the Iran war, the $100-per-barrel level has been viewed as a psychologically significant threshold that, when crossed, would spell inflationary trouble for the economy and the stock market.

Given that gas prices at the pump just rose to the highest level of Trump's second term, and that stocks are coming off their roughest week in months, both pieces of that equation appear to be moving into place.

The narrative is the same one that sent crude prices nearly 30% higher last week: as long as the Iran war rages on — and as long as countries in the Middle East continue to cut production — prices will move higher.

The focal point has been the Strait of Hormuz, which handles a fifth of the world's oil flow. As regional disruption has persisted, the scope of concerns has expanded to the entire global oil logistics network.

"This oil shock won't end until ships can sail freely through the Strait," wrote veteran strategist Ed Yardeni.

"Until then, the financial markets are likely to become increasingly concerned about a 1970s-style stagflation scenario; back then, the period of stagflation included two recessions," Yardeni added.

Warren Patterson, the head of commodities strategy at ING, wrote that even if shipments through the Strait of Hormuz restart, producers won't be able to quickly restore output.

With production offline and no clear signs that the conflict is easing, traders are being forced to factor in the risk of an extended disruption, he added.

"The bottom line is that, as long as we don't see oil moving through the Strait of Hormuz, oil prices will only move higher," Patterson wrote.

José Torres, a senior economist at Interactive Brokers, told BI last week that $100 would mark a true price shock for oil, leading to persistently high inflation and a possible down year for stocks. (The equity market already started feeling that pressure last week.)

Morgan Stanley's chief investment officer, Mike Wilson — one of the most bullish stock strategists on Wall Street — has also been eyeing $100 as the level where he'd lower his base-case scenario for stocks this year.

If oil keeps rising, market pros have said to expect more trouble.

"$120 for Brent, you're at zero growth. That's the trigger for a recession," Bruce Richards, the CEO of Marathon Asset Management, said last week. "That's what I believe. And I believe that's what the markets believe, although no one said it yet."

The spillover: dollar gains and stocks slump

The prospects of an oil price shock and its fallout on global economic growth spread through the markets.

The US Dollar Index was 0.4% higher as of 3:09 a.m.

The stronger dollar weighed on dollar-denominated commodities, even the haven trade in gold. The spot gold price was 1.4% lower at $5,097 per troy ounce.

All three main US stock market futures were about 2% lower.

Stock markets in Asia started the week deep in the red, with Japan's Nikkei 225 losing over 7% and South Korea's Kospi slumping by over 8%.

Hong Kong's Hang Seng was down about 3% and Taiwan's Taiex lost over 6%. Australia's ASX200 dropped over 4%.

Asia is a major energy importer and is especially exposed to the disruption in oil supplies.

It could take months for energy flows in Asia to normalize, wrote June Goh, a senior oil market analyst at data provider Sparta Commodities, on X.

"10 days of Straits of Hormuz disruption = at least 60 days of pain to the energy flow in Asia. And I am being optimistic here," Goh added.