Supply disruption rapidly amplifies market panic: What happens as crude oil approaches 120?

Since the U.S.-Israel military strikes on Iran began on February 28, the Middle East situation has rapidly escalated, deviating from the initially optimistic expectations of controlled and limited escalation. Currently, Iran is increasing drone attacks on Persian Gulf shipping and some nearby countries’ oil and gas facilities, causing almost stoppage of shipping through the Strait of Hormuz; Israel has also intensified bombings of Iran’s energy production facilities; at the same time, oil-producing countries like Kuwait, the UAE, Iraq, and Saudi Arabia are forced to cut production due to blocked exports and near-saturated onshore storage facilities, further tightening short-term oil supply expectations.

Driven by supply disruption expectations and geopolitical risk premiums, market panic has quickly intensified. On March 9 (Monday), Brent crude and WTI prices surged nearly 30% intraday, approaching the $120 mark, with the price spread narrowing to -$1 per barrel. The structure of crude oil futures rapidly shifted to a significant spot premium: the near-month spread for Brent widened to about $9.48 per barrel, up from just $0.62 a month ago, the highest level since 2013, reflecting extreme short-term supply tightness. Similar changes appeared in the forward curve: the June-December spread expanded from $1.48 two weeks ago to $9.21, indicating producers are accelerating locking in future sales prices through forward contracts.

However, as the G7 countries announced plans to coordinate the release of strategic petroleum reserves, possibly totaling 300-400 million barrels, the oil price rally quickly narrowed to below 15%. Market sentiment temporarily recovered from panic, and risk premiums fell rapidly. Currently, the Japanese government has instructed the national oil reserve base to prepare for releasing crude oil. About 95% of Japan’s crude oil imports come from the Middle East, with approximately 70% transported via the Strait of Hormuz. As oil supply tightens and prices break through $100, the urgency for governments to utilize emergency reserves has become increasingly apparent.

Supply Chain Disruptions and Cross-Asset Stagflation Correction