Citigroup has raised its short-term Brent crude oil price forecast by $15 per barrel to $85 per barrel. The bank expects the global benchmark Brent crude oil price to fluctuate between $80 and $90 this week due to ongoing risks to energy infrastructure and the disruption of natural gas transportation through the Strait of Hormuz.
Our basic view is that either a change in the Iranian leadership or a significant enough change in the regime will lead to a cessation of hostilities within one to two weeks, or that the US, upon seeing a change in leadership, will decide to de-escalate and at the same time thwart Iran’s missile and nuclear programs during the same period, analysts including Francesco Martoccia and Max Layton said in a report.
Citibank stated that if regional oil infrastructure were to be disrupted, oil prices could rise to $120 per barrel, and it believes that the probability of this happening is 20%.
Jorge Leon, head of geopolitical analysis at Rystad Energy, told Bloomberg Television in an interview: “We are looking at a scenario where the disruption of the Strait of Hormuz lasts for more than a few days, for weeks or even months. In that case, we would definitely see the possibility of oil prices falling to $100 per barrel.”
He indicated that the impact of OPEC+ increasing production might actually be very limited, as most of the additional crude oil would also need to be transported through the strait.
Goldman Sachs said that the real-time risk premium for crude oil prices is about $18 per barrel, which is in line with the impact the company estimates for a full six-week disruption of tanker traffic through the Strait of Hormuz.
Analysts Daan Struyven and others stated in a report that the risk premium is equivalent to the market pricing of a one-year global oil supply disruption of 2.3 million barrels per day.
The disruption of traffic through the Strait of Hormuz could also have a “very significant” impact on the markets for diesel, jet fuel and naphtha. Last year, about 9% of the global daily supply of diesel and about 18% of jet fuel were transported through the Strait of Hormuz.
Analysts said, “Although our forecast leans towards an upward risk, history shows that price surges caused by geopolitical shocks and/or temporary supply disruptions can be short-lived.”
Alan Gelder, senior vice president of refining, chemicals and oil markets at Wood Mackenzie, said that if the Iranian regime chooses to cooperate with the United States, it will take at least several weeks for energy flows through the Strait of Hormuz to resume.
If the oil tanker traffic through the strait does not resume quickly, the oil price may exceed $100 per barrel. Even if OPEC+ announces plans to increase production in April, the group’s additional output and spare capacity will remain unused if this waterway remains closed.
Natasha Kanatova and Lyuba Savina, analysts at JPMorgan, said in a report that the chaos in the Strait of Hormuz was “mainly for precautionary purposes”, rather than due to a direct attack on the waterway, after insurers warned they would cancel policies and raise premiums.
However, if the Iranian leadership loses control over the Islamic Revolutionary Guard Corps, the risks could escalate, thereby increasing the possibility of unpredictable attacks on regional energy assets.
Analysts say: “If the conflict lasts for more than three weeks, the oil producers in the Gulf Cooperation Council will run out of storage capacity and be forced to halt production.”
