Crude oil prices have surged to their highest levels since early March as geopolitical tensions flare in the Red Sea. US military strikes on Yemen’s Houthi group, combined with economic signals from China, have reignited volatility in global energy markets.
During early Asian trading, West Texas Intermediate (WTI) futures spiked 1.5% to $68.19 per barrel, while Brent crude futures jumped 1.42% to $71.58 per barrel. Natural gas prices also edged up nearly 1% to $4.14 per million British thermal units (MMBtu). The rally comes as China’s economic recovery gains traction, with retail sales climbing 4% in the first two months of the year, reinforcing demand optimism.
Geopolitical risk remains a key driver of oil market uncertainty. The Red Sea and Suez Canal serve as vital trade arteries for global energy flows, yet escalating hostilities threaten to disrupt shipping routes. In late 2023, the Iran-backed Houthi group launched attacks on commercial vessels, forcing oil and gas tankers to reroute and driving up transportation costs. After a six-week ceasefire in Gaza ended, the Houthis resumed attacks, prompting swift retaliation from the US. Over the weekend, President Trump ordered military strikes against Houthi positions, warning that attacks on American vessels would not be tolerated. Pentagon chief Pete Hegseth vowed an “unrelenting” response until the group ceases hostilities.
The rebound in oil prices follows a sharp downturn earlier in the month, when crude hit its lowest levels since November 2021 amid economic concerns and intensifying trade conflicts. China’s imposition of tariffs on US crude and liquefied natural gas (LNG), coupled with Trump’s decision to levy a 10% tariff on Canadian oil, added further strain. Meanwhile, OPEC+ announced plans to increase production by 138,000 barrels per day starting in April, adding to downward pressure. Since mid-January, Brent crude had dropped 16%, while WTI plunged 18%.
Fresh US sanctions on Iran have also fueled the recent price rebound. Iran, which holds 24% of the Middle East’s oil reserves, has ramped up exports since 2022, supplying 1.5 million barrels per day to the global market. The tightening of US sanctions could curb Iranian output, constraining supply just as demand rebounds. Further complicating the geopolitical landscape, Russian President Vladimir Putin has called for revisions to the US ceasefire proposal in Ukraine, reducing the likelihood of an immediate truce. A weakened US dollar and potential oversold conditions in oil markets have also contributed to the price recovery.
Despite recent gains, analysts caution that economic concerns could limit oil’s upside. Uncertainty surrounding US trade policy and fears of a slowing global economy remain key headwinds. The International Energy Agency (IEA) has warned that global oil supply may exceed demand by approximately 600,000 barrels per day in 2025. Record US production, combined with softer demand due to escalating trade tensions, could keep prices in check.
US crude inventories have steadily risen, reflecting ample supply. Stockpiles have increased for six of the past seven weeks, with a 1.45-million-barrel build in early March. Meanwhile, US crude production remains near record highs at 13.58 million barrels per day.
As markets react to geopolitical risks, trade tensions, and supply-demand dynamics, investors will closely monitor policy shifts and energy market fundamentals in the months ahead.
Challenger Energy Group Plc (LON:CGE) is an Atlantic-margin focused energy company, with production, development, appraisal, and exploration assets in the region. Challenger Energy’s primary assets are located in Uruguay, where the Company holds two high impact offshore exploration licences, totalling 19,000km2 (gross) and is partnered with Chevron on the AREA-OFF 1 block. Challenger Energy is quoted on the AIM market of the London Stock Exchange.
