Brent hits multi-year highs as JP Morgan flags global supply crunch and ‘forced demand loss'

Global oil prices surged to multi-year highs on Thursday as escalating tensions between the United States and Iran heightened fears of prolonged supply disruptions, particularly through the strategically vital Strait of Hormuz.

Brent crude climbed to a fresh four-year high, breaching $122 per barrel and briefly touching over $126 intraday, the highest level since March 2022. US West Texas Intermediate (WTI) also advanced, crossing $108 per barrel, extending recent gains driven by geopolitical uncertainty.

The rally comes as markets increasingly price in the risk of a prolonged disruption to global oil supplies following renewed hostilities involving Donald Trump’s administration and Iran. Reports suggest Washington is considering further military action to break the deadlock in nuclear negotiations, adding to volatility in energy markets.

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The conflict has already had a tangible impact on supply chains. Iran’s closure of key shipping routes through the Strait of Hormuz—a critical artery for global energy flows—has severely restricted oil movement from the Gulf. Analysts warn that any prolonged disruption could tighten supply further and exacerbate inflationary pressures worldwide.

Despite a temporary ceasefire, the broader geopolitical standoff shows little sign of resolution. Market participants remain focused on the risk that the disruption could stretch for months, with limited alternatives available to offset the supply shock.

Meanwhile, the influence of OPEC+ appears to be waning in the near term. Although the cartel and its allies are expected to announce a modest output increase of around 188,000 barrels per day, analysts believe this will do little to ease current supply constraints.

Compounding the uncertainty is the United Arab Emirates’ exit from OPEC, effective May 1. While the move is seen as a long-term challenge to the cartel’s pricing power, its immediate impact on global supply is expected to remain limited amid ongoing disruptions.

With supply tightening sharply, some analysts argue that demand destruction—where high prices curb consumption—may be the only mechanism to rebalance the market. However, even this may not be sufficient. Estimates suggest around 1.6 million barrels per day of demand could be lost due to high prices, but that still falls short of bridging the existing supply gap.

Separately, a report by JP Morgan indicates that the recent drop in global oil demand is not driven by price shocks but by physical shortages—a phenomenon described as “forced demand loss.” Supply disruptions surged significantly in recent months, particularly due to the Hormuz blockade, limiting actual consumption across key regions, including Asia and the Middle East.