Oil Tops $105 as Brent Surges 61% Year-Over-Year, Lifting Gasoline Prices

Brent crude, the global benchmark, traded at $105.81 a barrel at 7 a.m. Eastern Time on Friday, up $2.44 from Thursday’s open and roughly 61% higher than the $65.57 level seen a year ago. The advance extends a climb that has accelerated since late March, when prices hovered near $98, and puts the market within striking distance of the 2022 highs that followed Russia’s invasion of Ukraine.

The move translates almost immediately to the pump. Crude accounts for a little more than half the retail price of a gallon of regular gasoline, according to Energy Information Administration data. The national average for regular stood at $3.76 a gallon Thursday, up 12 cents in a week and 48 cents higher than a month ago, AAA reported. Refiners and distributors typically pass crude-cost increases through within days — a phenomenon traders call “rockets” — while declines can take weeks to filter down, the “feathers” effect that frustrates motorists.

Behind the rally, supply tightness outweighs demand worries. OPEC+ has kept its 2 million barrel-a-day production cut in place through the second quarter, and Saudi Arabia’s voluntary additional 1 million barrel-a-day reduction runs through June. Russian seaborne exports have fallen below 3 million barrels a day for the first time since the Group of Seven price cap took effect, according to tanker-tracking data compiled by Bloomberg. Meanwhile, Chinese crude imports hit a record 12.9 million barrels a day in March as the world’s largest importer rebuilds strategic stocks.

U.S. production, while near a record 13.2 million barrels a day, is growing more slowly than forecast. The Permian Basin, responsible for nearly half of domestic output, faces pipeline constraints and declining well productivity. The EIA this week lowered its 2024 U.S. supply growth estimate to 290,000 barrels a day from 380,000, citing slower drilling efficiency gains.

The Strategic Petroleum Reserve, the government’s emergency stockpile, holds 363 million barrels — the lowest since 1983 — after the Biden administration sold 180 million barrels in 2022 to combat price spikes. Replenishment purchases planned for this year have been delayed because prices remain above the $67-to-$72 target range officials set. The reserve’s drawdown capacity is now limited to about 4.4 million barrels a day, down from 4.5 million at full levels, reducing its ability to calm future supply shocks.

Brent’s premium over West Texas Intermediate, the U.S. benchmark, widened to $6.80 a barrel Friday, the widest since January. The spread reflects tighter global waterborne supply relative to landlocked Cushing, Oklahoma, where WTI is priced. A wider spread incentivizes U.S. exports, which averaged 4.1 million barrels a day in March, a record for the month.

History underscores oil’s volatility. The 1973 Arab embargo quadrupled prices in months. The 1980s glut collapsed them for years. The 2008 spike to $147 preceded the financial crisis crash to $32. In April 2020, WTI futures turned negative for the first time as storage filled during lockdowns. Each cycle reshaped energy policy, investment, and geopolitics.

For the broader economy, the current runup complicates the Federal Reserve‘s inflation fight. Energy costs feed directly into the consumer price index and indirectly into transportation and plastics. The March CPI report showed gasoline prices rose 1.7% monthly, contributing more than half the headline increase. Fed officials have signaled they will tolerate transient energy spikes but worry about second-round effects on wages and services inflation.

Natural gas, meanwhile, trades near $1.80 per million British thermal units at Henry Hub, down 45% from a year ago. The divergence reflects ample domestic gas supply and limited export capacity — a contrast to oil’s global tightness. Industrial users able to switch fuels have shifted toward gas, capping some oil demand.

Traders now watch the June 2 OPEC+ meeting in Vienna for signals on whether cuts extend into the second half. Also key: weekly U.S. inventory data Wednesday, Chinese purchasing managers’ index readings next week, and whether Brent can sustain a close above $106, which would target the 2023 peak near $108.