• WTI crude surged 5% intraday to $106.50 a barrel, while Brent crude broke above $109, reaching its highest since March 23.
  • The spike was driven by renewed supply concerns, including geopolitical tensions and potential disruptions in key oil corridors.
  • Analysts warn of continued volatility as OPEC+ policy signals and inventory data remain in focus.

Oil prices rally on supply fears

Oil prices rallied sharply on Thursday, with West Texas Intermediate crude leaping 5% to $106.50 a barrel intraday, while Brent crude rose 4.9% to breach $109, the highest level since March 23. The surge comes amid escalating geopolitical tensions and growing concerns over potential supply disruptions in key producing regions, according to traders.

The move higher was triggered by reports of escalating conflict in the Middle East, threatening major shipping routes, as well as signals from OPEC+ that the group may not increase output as previously expected. “The market is pricing in a real risk of supply outages,” said a senior commodities strategist at a major bank, asking not to be named because he was not authorized to speak publicly.

Inventory data adds to bullish sentiment

Adding to the upward pressure, the latest U.S. inventory data showed a larger-than-expected drawdown in crude stocks, with the Energy Information Administration reporting a decline of 4.5 million barrels last week, well above the 2 million barrel drop analysts had forecast. Refinery utilization also ticked up, signaling strong demand ahead of the summer driving season.

“The combination of tight supply and firm demand is a recipe for higher prices,” said a portfolio manager focused on energy. “Until we see a meaningful increase in production or a demand slowdown, the upside bias remains.”

Broader market implications

The spike rippled through broader markets, with energy stocks jumping and consumer discretionary shares sliding on worries about higher fuel costs. The S&P 500 energy sector gained 2.3%, while airline and transport stocks fell as investors repriced the impact of elevated oil prices on margins.

Some analysts cautioned that the move could be overdone in the short term, pointing to the potential for profit-taking if geopolitical tensions ease. “We need to see if this is a sustained breakout or a knee-jerk reaction,” one strategist noted. “For now, all eyes are on OPEC+ and the next inventory report.”

Correction: An earlier version of this article incorrectly stated that Brent crude's previous high was on March 22. It was actually March 23.