Analysts See $100 Oil on Strait of Hormuz Disruption

Following the escalation of the conflict in the Middle East, energy analysts and investment banks expect oil prices to surge this week to $90 with chances of hitting $100 per barrel if disruptions to traffic in the crucial Strait of Hormuz persist.

Early on Monday in Asian trade, oil prices had already spiked by 10% to above $80 per barrel Brent. Seeing the scale of the conflict and the already disrupted traffic through the Strait of Hormuz, analysts expect further spikes at least this week.

Citigroup expects Brent Crude to trade in the $80 to $90 per barrel range over at least the coming week in the bank’s base case.

“Our baseline view is that the Iranian leadership changes, or that the regime changes sufficiently as to stop the war within 1-2 weeks, or the US decides to de-escalate having seen a change in leadership and set back Iran’s missiles and nuclear program over the same time frame,” analysts at Citigroup wrote in a note carried by Bloomberg.

Goldman Sachs sees an $18 a barrel real-time risk premium in oil prices. However, if only 50% of flows through the Strait of Hormuz are halted for a month, the war risk premium to prices would moderate to $4 per barrel, according to Goldman.

Wood Mackenzie sees disruption in flows to push oil to above $100 per barrel.

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“Higher oil and gas prices are certain as the closure of the Strait of Hormuz threatens to disrupt 15% of global oil supply and 20% of global LNG supply, with oil prices potentially exceeding $100/bbl if tanker flows are not quickly restored,” WoodMac said in a press note on Monday.

In the current scenario, oil prices over $100 per barrel are possible if transit flows are not re-established quickly, said Alan Gelder, SVP of Refining, Chemicals and Oil Markets at Wood Mackenzie.

Considering the high uncertainty around events in the Middle East, it is plausible that it takes a few weeks for export flows to re-establish themselves in the most optimistic scenario, in which the Iranian regime elects to co-operate with the U.S., Gelder added.

“During that time, oil prices are heavily risked to the upside,” Gelder said.

“The most recent comparison is during the early days of the Russia/Ukraine conflict, when the fear of loss of Russian supplies drove the oil price to over US$125/bbl.”

By Tsvetana Paraskova for Oilprice.com

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