Experts warn oil could hit $120 if Hormuz stalemate continues to linger
Oil prices could spike again this week following a collapse of talks between the United States and Iran ended yesterday without reaching an agreement, making the fate of the fragile
Oil prices could spike again this week following a collapse of talks between the United States and Iran ended yesterday without reaching an agreement, making the fate of the fragile two-week ceasefire still unclear.
Ahead of the peace talks, oil price, which had hit $118 per barrel, plummeted to $95.20 per barrel for the Brent and $95.81 per barrel for the WTI.
According to JP Morgan, oil could reach Iran-war levels at nearly $120 per barrel if a full recovery of vessel traffic through the Strait of Hormuz takes until July.
Indications to a further spike in crude oil price became evident yesterday with a warning by President Donald Trump that the U.S. Navy would “immediately” begin a blockade to stop ships from entering or leaving the Strait of Hormuz, after U.S.-Iran peace talks in Pakistan ended without an agreement.
Trump sought to exert strategic control over the waterway responsible for the transportation of 20 per cent of global oil supplies before the war, hoping to take away Iran’s key source of economic leverage in the fighting.
But despite the ceasefire announced last week, traffic through the critical oil chokepoint remains severely restricted and under supervision and approval by Iran’s Islamic Revolutionary Guard Corps (IRGC).
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“The ceasefire has not reopened the Strait of Hormuz, and transit remains tightly controlled. Transit through the Strait of Hormuz remains restricted, coordinated, and selectively enforced.
There has been no return to open commercial navigation,” maritime intelligence firm, Windward said.
The market had hoped that the Iran-U.S. negotiations at the weekend would further de-escalate the situation and lead to a faster re-opening of commercial navigation at the Strait of Hormuz.
At any rate, the immediate optimism after the ceasefire that the Strait of Hormuz would quickly reopen to tanker traffic has faded, and analysts have started to calculate the timelines and potential renewed upward pressure on oil prices.
JP Morgan’s analysts said that the market expects half of the normal flows to be restored by May and the traffic to be fully restored by June.
However, “a more gradual resumption to 100 per cent of pre-war levels by July might introduce $15-to-$20-a-barrel upside risk to prices,” JP Morgan’s experts wrote in the note carried by Bloomberg.
Early on Friday, both international benchmarks traded at $95-97 per barrel. On Thursday, Goldman Sachs analysts warned that Brent Crude is expected to average above $100 per barrel this year if the Strait of Hormuz remains mostly shut to tanker traffic for another month.
