The oil market is hoping for the best but bracing for the worst. Iran has been backed into a corner and the US blockade of the Strait of Hormuz has led to a shortage of storage facilities for ‘black gold’. According to Kpler estimates, at current production levels, supplies will last for 12 to 22 days. Production has already fallen to 2.5 million barrels per day and could drop to 1.5 million by mid-May. Tehran is forced to make proposals to the US for a peaceful resolution of the conflict, or it must hope that the global economy will collapse faster than the Islamic Republic’s.
Trafigura Group estimates that oil supply losses have amounted to 1 billion barrels since the start of the conflict in the Middle East. This figure could rise to 1.5 billion barrels if the standoff continues. Goldman Sachs forecasts a reduction in production in the Gulf states of 14.5 million barrels and a deficit of 9.6 million barrels per day, compared with last year’s surplus.
Bringing the market back into balance requires a significant demand reduction, driven by rising prices or government measures to curb oil and petroleum product consumption. Unsurprisingly, major banks are raising their Brent forecasts. Citigroup expects the North Sea crude to average $110 per barrel in the second quarter if the Strait of Hormuz reopens by the end of May. If this does not happen by the end of June, the average price will rise to $130 per barrel.
Goldman Sachs believes it will take longer than expected to repair the damaged infrastructure in the Gulf states and is raising its Brent forecast for October–December from $80 to $90 per barrel. Morgan Stanley forecasts Brent at $110 in the second quarter, $100 in the third quarter, and $90 in the fourth quarter.
According to Gunvor Group, if the conflict in the Middle East continues for another month, the oil market will reach a point at which onshore reserves run out. As a result, prices risk rising steadily, potentially reaching record highs.
Brent is already beginning its climb towards historic highs, reacting to the White House’s dissatisfaction with Iran’s proposal. According to the Americans, it implies Tehran retaining control over the Strait of Hormuz, which is unacceptable.
