The oil roller coaster reaches new heights — and it's a bumpy ride ahead

The oil market is in choppy waters. On Thursday, Brent Crude and West Texas Intermediate — two global benchmarks — were both up over 7%. WTI crossed the $100-per-barrel mark for the first time since late spring.

These high prices are the continuation of an uptrend since around mid-August, when oil was trading around $85-a-barrel. Prices are rising along with escalating attacks by both the U.S. and Iran on shipping, including tankers in the Persian Gulf, plus renewed Houthi attacks on Saudi Arabia.

Oil shipments out of the Middle East are now down 65% from one year ago, and the cost of moving that crude to Asia on the biggest tankers just hit a record high.

Before all the disruptions from the Iran war, the Persian Gulf accounted for about 20% of global oil supply, and the price of crude hovered around $70-a-barrel, said Bhushan Bahree, an executive director of oil markets at S&P Global Energy.

“We’re projecting prices at about $80 to $100-dollar range through next year,” he said.

The basic rationale, according to Bahree, is that there’s no longer an expectation the U.S.-Iran war will end anytime soon.

“Sometimes it’s a hot conflict, sometimes it’s cooler,” he said. “Some ships are getting through, sometimes in the dark, sometimes they’re not, they’re being bombed.”

The U.S. and Iran can both restrict or entirely cut off oil coming through the Strait of Hormuz — neither alone can fully reopen it. “The flows of oil are going to be very uneven, but overall, they’re going to be less,” Bahree said. “And you can’t count on it.”

If anything, S&P Global Energy’s year-ahead projection for crude oil is on the conservative side.

Gernot Wagner, director of the Climate Knowledge Initiative at Columbia Business School, has created his own model that predicts the price-per-barrel going forward.

“Around $100, never below $90,” Wagner said. “It’s not that the new normal is a stable higher price. It is essentially pricing in volatility, pricing in uncertainty.”

Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution also calls this a ‘new normal’ for the world oil market.

“We’re not going back,” Gross said.

She said markets have grown jaded after repeated announcements from the White House that the Strait of Hormuz was opening soon or the war was about to end, which temporarily drove crude prices lower.

“I don’t think the market’s believing those proclamations any more, because they haven’t held true,” she said. “The Strait of Hormuz won’t be what it was before. Now, we understand that Iran can and will block it.”

Because it turns out it’s neither very difficult, nor very expensive, for them to do so.