Brent Hits $110 Range as Iran Threatens Gulf Energy Strike

After the Iranian Revolutionary Guard said they would attack several oil sites in the Persian Gulf, Brent crude ended at $107.38 a barrel on Wednesday. This was the second straight day that the price was above $100 since the U.S. and Israel began their war against Iran on February 28. The intraday high of $109.95 briefly showed what Citigroup has been warning about all week: a market with real momentum into the $110–$120 level and no clear cap if the price keeps going up.

WTI, on the other hand, showed a different picture. It ended the day at $96.32, having lost most of its session gains. This is the biggest difference between Brent and WTI since May 2019. It shows that oil grades linked to the Middle East are under a lot of stress, and U.S. benchmarks are only partly safe from it.

Citigroup's Roadmap: Three Scenarios, One Clear Direction

Citigroup's Global Head of Commodities Maximilian Layton led a probability-weighted framework study that should be on every energy trader's desk.

Supply interruptions lasting four to six weeks and affecting 11 to 16 million barrels per day are the basic case, with a 50% likelihood. The market rises until prices reach a threshold that requires political or strategic intervention, such as Washington ceasing military operations, the IEA and OECD accelerating strategic reserve release, or a coordinated effort to reopen the Strait of Hormuz. Brent then recovers to $110–$120.

The bull case has a 30% chance of hitting $150, with an extreme scenario pushing toward $200 if Iran targets further oil infrastructure or closes the Strait through June. That number is staggering. It also seemed that way before Brent topped $100 for the first time in four years last week.

The bear case, which has a 20% chance, calls for a swift resolution between the United States and Iran as well as the reopening of Hormuz, which would push prices back around $65–$70 by year's end. That route appears to be the furthest away of the three given the Iranian warnings on Wednesday.

What Actually Moved the Market Wednesday

An attack on Iran's South Pars gas field, one of the biggest natural gas deposits in the world, served as the initial catalyst, prompting Tehran to warn that other energy facilities "will be targets in the coming hours." The industrial city of Ras Laffan was hit by missiles, according to QatarEnergy, which reported "significant damage." Any persistent damage to Qatar's LNG infrastructure, which is at the center of the world's gas supply lines, adds a second commodity crisis to the already existing oil disruption.

The Strait of Hormuz is still essentially closed. By most accounts, this is the worst supply shock in history, with daily output losses in the Middle East estimated at 7 to 10 million barrels, or roughly 7% to 10% of world demand.

Policy Responses: Meaningful but Insufficient

Washington is making progress on several fronts. A small supply chain relief valve was provided by the Trump administration's temporary 60-day Jones Act exception, which permits foreign-flagged ships to move fuel and cargo between U.S. ports. Although there was no effect on futures, summer gasoline emission regulations were briefly loosened. 

Additionally, a broad authorization for certain PDVSA transactions in Venezuela was granted, pushing more barrels onto the market. The American Petroleum Institute will meet with VP JD Vance and senior government officials on Thursday.

Additionally, incremental supply is making a comeback elsewhere. Following an agreement between Baghdad and Kurdistan, Iraq's Kirkuk oil field restarted shipments via Turkey's Ceyhan port at a starting rate of 250,000 barrels per day. Due to a fire, Libya's Sharara field is rerouting its output through several pipelines. Additionally, U.S. oil stocks increased by 6.2 million barrels to 449.3 million barrels last week, exceeding the consensus expectation of 383,000 barrels and offering a small domestic buffer.

Nothing is making enough of an impact to close the deficit of 7–10 million bpd.

According to Citigroup's framework, the center of gravity of the market is between $110 and $120 rather than $107. The deal on Wednesday is a starting point rather than a ceiling. 

The $150 scenario is no longer speculative due to Iran's stated threat to attack Gulf energy infrastructure, and the Ras Laffan strike adds LNG disruption risk that wasn't included in last week's pricing. 

The price of aluminum is also skyrocketing; Citi warned that if Middle Eastern smelters reduce production, there could be a 6% decrease in the world's supply, giving what started out as a pure oil tale a metals component. Energy markets are trading headlines rather than fundamentals until the Strait reopens or a truce occurs.