As oil prices spike, G7 opts not to dip into emergency reserves for now

Oil prices spiked to near $120 US per barrel before falling back on Monday as the Iran war intensified, threatening production and shipping in the Middle East and pummelling financial markets.

Prices eased only after French President Emmanuel Macron said the Group of Seven nations could dip into their emergency oil stockpiles in response to soaring prices. But G7 countries have not yet decided on the potential ‌release of oil reserves, ​France’s finance minister said on Monday.

“We’re not there yet,” said Minister Roland Lescure in Brussels after chairing a meeting of his G7 counterparts. “We are ready to take necessary and coordinated steps in order to stabilize markets, such as strategic stockpiling.”

The price for a barrel of Brent crude, the international standard, surged to $119.50 US per barrel early in the day but later was trading near $101 US per barrel, up nine per cent.

West Texas intermediate, the light, sweet crude oil produced in the United States, soared above $119.48 US per barrel but fell back closer to $100 US.

Iran named the hard-line Ayatollah Mojtaba Khamenei to succeed his late father as supreme leader on Monday, signaling no letup in the war.

The appointment marked a new sign of defiance by Iran’s embattled leadership after more than a week of heavy U.S. and Israeli bombardment, suggesting that Tehran is not close to giving up on what it considers a fight for the country’s existence.

Oil depots in Tehran smoldered following overnight strikes by Israel. The war’s toll on civilian targets grew as Bahrain accused Iran of striking a desalination plant vital to drinking water supplies.

Bahrain’s national oil company declared force majeure for its shipments after an Iranian attack set its refinery complex ablaze. The legal declaration releases the company of contractual obligations because of extraordinary circumstances.

“Do not discount the severity of this escalation. Even if, just say, Trump comes in and calms the market, the impact of this I think will last for years to come,” said June Goh, senior oil market analyst for Sparta Commodities, during an interview with CBC News on Sunday evening.

“There will be a reshuffling of strategy from many Asian players, there will be need for diversification and obviously Canada will be well-poised to be there,” she said.

Oil prices have surged as the war, now in its second week, ensnares countries and places that are critical to the production and movement of oil and gas from the Persian Gulf.

G7 opts not to release oil reserves for now

French President Emmanuel Macron had previously said Monday that “the use of strategic reserves is an envisaged option.” He said G7 leaders could meet this week to coordinate a response to climbing energy prices.

On Saturday, U.S. President Donald Trump downplayed the idea of turning to America’s Strategic Petroleum Reserve, saying U.S. supplies were ample and prices would soon fall.

Roughly 15 million barrels of crude oil — about 20 per cent of the world’s oil — typically are shipped every day through the Strait of Hormuz, according to independent research firm Rystad Energy.

The threat of Iranian missile and drone attacks has all but stopped tankers carrying oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates and Iran from travelling through the strait, which is bordered in the north by Iran.

Iraq, Kuwait and the U.A.E. have cut oil production as storage tanks fill due to the reduced ability to export crude. Iran, Israel and the United States also have attacked oil and gas facilities since the war started, worsening supply concerns.

High gas prices rocking Asian economies

The surge in costs for oil and natural gas is pushing fuel prices higher, cascading through other industries and jolting Asian economies that are especially vulnerable due to the region’s heavy reliance on imports from the Middle East.

Iran exports roughly 1.6 million barrels of oil a day, mostly to China, which has called for an immediate end to the fighting. Beijing may need to look elsewhere for supply if Iran’s exports are disrupted, another factor that could increase energy prices.

“All parties have their responsibility to ensure stable and smooth energy supplies,” Chinese Foreign Ministry spokesman Guo Jiakun said in a briefing Monday. “China will take necessary measures to safeguard its own energy security.”

South Korean President Lee Jae Myung warned Monday of strict penalties for refiners and gas stations caught hoarding or colluding on prices, saying it would be wise to find alternatives to supplies that must travel through the Strait of Hormuz. The country’s Kospi index tumbled six per cent to 5,251.87.

Across Southeast Asia, the spike in prices has led to long lines outside filling stations.

“Higher oil and gas prices will affect everyone and our economy,” said Le Van Tu, who was waiting outside a gas station in the Vietnamese capital Hanoi. “All activities, including those using petrol based transportation will be affected.”

The last time Brent and U.S. crude futures traded near the current level was in 2022, after Russia invaded Ukraine.

Why airfare could get pricier

Higher energy costs push inflation higher, straining household budgets and denting the consumer spending that is a main driver of many big economies. Those worries have spilled into financial markets, pulling share prices sharply lower.

Jet fuel prices could also rise in the months to come. U.S. airline stocks dropped last week, and United Airlines CEO Scott Kirby said on Friday that spiking fuel prices could lead to higher airfare.

Goh, the oil analyst, said that travellers are advised to book trips sooner rather than later.

Many airlines have hedge fuel programs in place, she said, which can help offset a sudden spike in fuel costs. But they won’t be able to sustain that forever.

“The jet fuel price at a higher level will kick in and they cannot absorb it entirely within the airlines themselves. So the consumer will need to feel the pain,” she said.

Meanwhile, the average retail price of gas in Canada reached $1.54 per litre on Monday, according to data from GasBuddy.com.

In the U.S., the average price of a gallon of regular gasoline rose to $3.48 as of early Monday, up nearly 50 cents from a week earlier, according to the American Automobile Association. Diesel, used heavily in shipping, sold for about $4.66 a gallon, a weekly increase of more than 80 cents.

The price of natural gas in the U.S. also has climbed during the war, though not by as much as oil. It was selling for about $3.34 per 1,000 cubic feet early Monday. That’s up from Friday’s closing price of $3.19.