Oil Prices Could Rise Further on Hormuz Delays, Analysts Say

Brent jumped by as much as 13% to above $82 a barrel at the open on Monday, and oil markets are now bracing for prolonged volatility and sustained disruptions in the Strait of Hormuz.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Brent jumped by as much as 13% to above $82 a barrel at the open on Monday, and oil markets are now bracing for prolonged volatility and sustained disruptions in the Strait of Hormuz.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.Tanker traffic through the strait effectively stalled over the weekend as US and Israeli attacks on Iran escalated into a regional conflict. About a fifth of the world’s oil and liquefied natural gas typically flows through Hormuz each day. Iran said the waterway remains open, but it also claimed responsibility for attacks on three oil tankers on Sunday. Shipowners have largely halted traveling through the chokepoint after the US declared a maritime warning zone.Here’s what analysts are saying about the risks: Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Citigroup Citigroup Inc. raised its short-term Brent forecast by $15 a barrel to $85. The bank expects the global benchmark to trade between $80 and $90 this week due to persistent risk to energy infrastructure and “disrupted” flows through the Strait of Hormuz.“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 including Francesco Martoccia and Max Layton said in a note.If regional oil infrastructure gets hit, prices could rise as high as $120 a barrel, said Citi, assigning a 20% chance to this scenario.Rystad Energy“We are looking into a scenario where there continues a longer disruption to the Strait of Hormuz, for more than a few days, towards weeks or months, then we definitely see a scenario possible of $100 barrel,” Jorge Leon, head of geopolitical analysis at Rystad Energy, told Bloomberg television.The impact of the OPEC+ production hikes might actually be very limited, as most of those additional barrels would also need to pass through the strait, he said.Goldman Sachs GroupGoldman Sachs Group Inc. said the real-time risk premium for crude oil prices was about $18 a barrel, corresponding to its estimate of the impact of a six-week full halt of tanker traffic in the Strait of Hormuz.The risk premium equates to the market pricing in a one-year disruption of 2.3 million barrels a day to global supply, analysts including Daan Struyven said in a note.Disruption in the strait could also be “very significant” for gasoil, jet fuel and naphtha markets. About 9% of the world’s daily gasoil supply, and around 18% of jet fuel transited Hormuz last year.“While the risks to our forecast are skewed to the upside, history suggests that price spikes driven by geopolitical shocks or/and temporary supply disruptions can be short-lived,” the analysts said.Wood MackenzieEnergy flows through the Strait of Hormuz could take a few weeks to reestablish themselves at the soonest, if the Iranian regime chooses to cooperate with the US, said Wood Mackenzie’s SVP of Refining, Chemicals and Oil Markets Alan Gelder. Oil prices could exceed $100 a barrel if tanker flows in the strait aren’t quickly restored. Even with OPEC+ announcing plans to raise production in April, the bloc’s additional volumes and spare capacity will be inaccessible if the waterway remains closedJPMorgan Chase & Co.Disruption at the Strait of Hormuz is “largely precautionary” after insurers warned that they would cancel policies and raise premiums, rather than the result of direct attacks on the waterway, analysts including Natasha Kaneva and Lyuba Savinova said in a note.However, risks could escalate if Iran’s leadership loses control of the Islamic Revolutionary Guard Corps, raising the odds of unpredictable attacks on regional energy assets. “If the conflict lasts more than three weeks, Gulf Cooperation Council oil producers would exhaust storage capacity and would be forced to shut in production,” the analysts said. Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. 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