Morning Highlights:Oil Spikes to $119 Before Retreating to $104; Iraq Output Down 70%, Kuwait Force Majeure, G7 Discusses Emergency Reserve Release

Monday, March 9, 2026

MARKET SNAPSHOT

Oil exploded higher in overnight trading before pulling back sharply in a historic whiplash session. Brent crude hit an intraday high of $119.50/bbl, the biggest absolute single-day price jump ever, before retreating to $104.21/bbl (+$11.52) by 6:00 AM EST. WTI spiked to $119.48/bbl before settling back to $101.65/bbl (+$10.75). Both benchmarks are at levels not seen since mid-2022. Brent had already climbed 28% last week and WTI 36%. U.S. gasoline futures surged to their highest since 2022 at $3.22/gallon.

The overnight spike to $119 was driven by the combination of Iraq's southern production collapsing 70%, Kuwait declaring force majeure, and the appointment of hardliner Mojtaba Khamenei as Iran's new supreme leader, signaling no path to near-term de-escalation. The pullback from $119 to $104 reflects some profit-taking and reports that G7 nations are discussing coordinated strategic reserve releases.

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TOP DEVELOPMENTS

Iraq Production Collapses 70% as Storage Maxes Out

Iraq's main southern oilfields have seen production fall 70%, with crude storage reaching maximum capacity. This confirms the shutdown timeline J.P. Morgan warned about last week (3.3M bpd by day eight). Iraq, OPEC's second-largest producer at roughly 4.5M bpd, is now effectively offline from its primary producing region. Kurdistan was already dark. Iraq has gone from a functioning major exporter to near-total shutdown in nine days.

Kuwait Declares Force Majeure, Begins Cutting Output

Kuwait Petroleum Corporation began cutting oil output Saturday and declared force majeure on shipments, though it did not specify volumes. Kuwait produces roughly 2.8M bpd. Analysts expect the UAE and Saudi Arabia will have to follow as they run out of storage capacity.

The domino effect we warned about is playing out. Hormuz closure forces storage to fill, full storage forces production cuts, and production cuts cascade through every Gulf producer without alternative export routes. Iraq (70% cut), Kuwait (force majeure), Qatar (force majeure on LNG), Bahrain (BAPCO force majeure after refinery attack). Saudi Arabia and the UAE are next. This is a rolling shutdown of the Gulf's entire energy export apparatus.

Mojtaba Khamenei Appointed Iran's New Supreme Leader

Mojtaba Khamenei succeeded his father Ali Khamenei as Iran's supreme leader, a move that cements hardliner control in Tehran a week into the conflict. This eliminates any near-term prospect of a diplomatic off-ramp driven by internal Iranian political change.

The market briefly priced the possibility that the conflict could produce regime change or a leadership shift toward moderates who might negotiate. Mojtaba's appointment is the opposite signal. The Revolutionary Guards and hardliner establishment are consolidating power, not fracturing. This means the war continues, Hormuz stays closed, and the supply disruption has no visible end date.

G7 Discussing Coordinated Strategic Reserve Release

G7 finance ministers are set to discuss a possible joint release of oil reserves Monday, with the call scheduled around 1:30 PM CET. France, holding the G7 presidency, initiated the discussion. The FT reported the U.S. supports the idea and any action would coordinate with the IEA. No decision has been taken yet.

Coordinated SPR drawdowns have only happened five times before: twice for Russia's Ukraine invasion, plus Libya, Hurricane Katrina, and the first Gulf War. The fact that this is being discussed at G7 level puts this crisis in the same category. However, the U.S. SPR is only 60% full (roughly 370M barrels), and even a large coordinated release provides limited relief against 20M bpd of blocked Hormuz flows. SPR releases are measured in hundreds of thousands of bpd. The shortfall is measured in millions.

Saudi Aramco Offers Rare Spot Tenders at Massive Premiums

Aramco offered three grades (Arab Extra Light, Arab Light, Arab Heavy) in separate spot tenders, an extremely rare move as Saudi crude is almost exclusively sold via long-term contracts. The Arab Extra Light (2M barrels on a VLCC near Taiwan) sold to Japan's Idemitsu at a $30-40/bbl premium to the official selling price. Arab Light (650K barrels) is being offered from Yanbu on the Red Sea. Arab Heavy (2M barrels) is loading from Ain Sokhna in Egypt.

These barrels reveal how Saudi Arabia is scrambling to monetize crude through non-Gulf routes. The Yanbu and Ain Sokhna loadings bypass Hormuz entirely via the East-West Pipeline and Sumed Pipeline. The $30-40/bbl premium to OSP on the Extra Light cargo near Taiwan tells you how desperate Asian buyers are for physical barrels. Some volumes may have come from Saudi storage in Japan, others from term lifters who couldn't take delivery due to security risks. This is emergency supply allocation, not normal market operations.

Regional Attacks Continue

A fire broke out in the UAE's Fujairah oil zone from falling debris. Saudi Arabia intercepted a drone heading to the Shaybah oilfield (one of its largest, producing roughly 1M bpd in the remote Empty Quarter). Bahrain's BAPCO declared force majeure after an attack on its refinery complex.

Implication:The target list is expanding. Shaybah is deep in the Saudi desert, far from any front line, and targeting it suggests Iran or its proxies are reaching for Saudi Arabia's most strategically important inland assets. If Shaybah were hit, that's another 1M bpd at risk from a facility that's extremely difficult to repair quickly given its remote location.

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BOTTOM LINE

The spike to $119 and retreat to $104 in a single session tells you the market is in uncharted territory and doesn't know how to price this. The $119 high represents panic buying on the Iraq 70% shutdown and Kuwait force majeure headlines. The retreat to $104 reflects the G7 reserve release discussion and some recognition that $119 overshoots near-term fundamentals. But the direction is clear: every day this conflict continues, more production comes offline, more storage fills up, and the disruption deepens.

The math is now approaching catastrophic levels. Iraq down 70% (roughly 3M+ bpd lost), Kuwait under force majeure (2.8M bpd at risk), Qatar LNG in force majeure, Bahrain's BAPCO in force majeure, Saudi Arabia's largest refinery shut and Shaybah under drone threat, Iran's own exports disrupted. The total actual and imminent production loss is approaching 8-10M bpd if Saudi Arabia and the UAE are forced to cut as storage fills, which analysts now expect. That would be the largest supply disruption in the history of the oil market, dwarfing 1973, 1979, and 1990.

The G7 coordinated SPR release, if it comes, provides psychological relief but limited physical barrels. Total OECD strategic reserves are roughly 1.2 billion barrels. Releasing at the maximum historical rate of about 2M bpd (the 2022 pace) covers only a fraction of the Gulf shortfall. And the U.S. SPR at 60% means Washington has less to contribute than in 2022.

Aramco's spot tenders at $30-40/bbl premiums to OSP reveal the true state of the physical market. These are desperation premiums being paid by Asian refiners who cannot source crude through normal channels. The fact that Aramco is routing barrels through Yanbu and Ain Sokhna shows the East-West Pipeline and Sumed systems are now critical infrastructure, but their combined capacity (roughly 7-8M bpd maximum) cannot replace 20M bpd of Hormuz flows.

Mojtaba Khamenei's appointment as supreme leader removes the last diplomatic wild card. There is no moderate faction coming to power in Tehran, no internal pressure for a deal. The hardliners who closed Hormuz are consolidating control. The conflict has no visible end date.

Where do prices go from here? Qatar's energy minister warned of $150 if all Gulf exports shut. Goldman's $100 scenario (5 weeks of Hormuz closure) was breached on day nine. The $119 intraday spike shows the market is willing to price triple digits. The retreat to $104 shows there's resistance, partly from SPR release expectations and partly because demand destruction starts to kick in at these levels. But the supply losses are growing faster than any policy response can offset. If Saudi Arabia and the UAE announce production cuts this week as storage fills, $119 won't be the high. Watch the G7 call this afternoon, Saudi/UAE storage levels, and whether the Shaybah drone threat materializes. The biggest risk now is an event the market hasn't priced yet: confirmed damage to a major Saudi production facility.