Uche Cecil Izuora
A major market disruption occurred in the first quarter of this year with crude
oil and petroleum product prices rising significantly particularly following military action in the Middle East on February 28 and the subsequent de facto closure of the Strait of Hormuz.
According to Oil and Gas 360, quarterly update, which reviewed petroleum markets price developments in 1Q26, covering crude oil prices, petroleum product prices, and refinery inputs, after beginning the year at $61 per barrel (b), the front-month futures price of Brent crude oil finished the quarter at $118/b.
The price increase during the quarter was the largest on an inflation-adjusted basis in data going back to 1988.
In January and February, Brent prices steadily increased from $61/b to $72/b in response to increasing risk of a conflict in the Middle East.
Following military action in the region, prices increased more sharply after most shipping traffic stopped traversing the Strait of Hormuz because of the risk of physical damage from Iranian attacks to vessels transiting the strait.
In response to disrupted navigation through the strait, many countries in the Middle East—including Iran, Saudi Arabia and the UAE shut in oil production. Attacks on energy infrastructure and the threat of additional attacks also supported increasing crude oil prices. The price of Brent crude oil surpassed $100/b on March 12 and continued to generally increase throughout the month.
As crude oil prices increased in March, the spread between Brent and West Texas Intermediate (WTI) crude oil futures contracts for May delivery widened. The Brent price increased more sharply than the WTI price due to exposure to higher shipping costs and reduced oil flows between regions near the Strait of Hormuz, while strong U.S. inventories and plans to release crude oil from the Strategic Petroleum Reserve helped limit WTI price increases. After beginning the quarter around $4/b, the Brent-WTI spread increased in March, peaking at $25/b on March 31 and averaging $11/b in the month, the highest in over five years.
Gasoline, distillate, and jet fuel spot prices increased rapidly in the first quarter after supply disruptions to Middle East exports of crude oil and petroleum products.
Higher crude oil prices caused petroleum product prices to increase because crude oil is typically the largest input cost for producing petroleum products.
On March 30, the U.S average retail gasoline price of $3.99 per gallon (gal) and U.S average diesel price of $5.40/gal were the highest in real terms in over two years.
Although gasoline prices have increased substantially, jet fuel and distillate prices have increased significantly more.
On the supply side, disruption to Middle East exports of distillate and jet fuel have affected the market for these fuels far more than for gasoline. Strong distillate demand since the start of the quarter has also increased market tightness and amplified price increases.