“Reopening optimism” for the Strait of Hormuz is “sliding fast”, according to Skandinaviska Enskilda Banken AB (SEB) Chief Commodities Analyst Bjarne Schieldrop, who warned of the risk of a “knee-jerk” oil price adjustment higher in a SEB report sent to Rigzone on Thursday.
“What has been striking through April is how stable the rest of year Brent price has been around $90 per barrel,” Schieldrop said in the report.
“That stability rests on one key assumption: that the Strait of Hormuz reopens around 1 May. That assumption is now starting to slip,” he warned.
“Trump has been touting that a deal with Iran is imminent through most of April, but a deal now looks increasingly elusive. Polymarket bets in the U.S. for when the SoH will reopen have declined sharply over the past week,” Schieldrop pointed out.
“Bets on a reopening by 13 May has declined 27 percent since last Friday to now only 39 percent. Expectations for when the SoH will reopen is sliding rapidly into the future. That implies a higher oil price,” he added.
In the report, Schieldrop noted that the pricing of Brent for the rest of the year is very sensitive to when the Strait will reopen.
“For every week beyond 1 May that the Strait remains constrained, we estimate that the implied average price for the rest of the year should move up by roughly $5 per barrel as global inventories are eroded by some 100 million barrels per week,” he said.
“A reopening in mid-May points to a rest-of-year price closer to $100 per barrel, which is our current rest of year Brent price forecast,” he revealed.
Whether that proves realistic depends heavily on how negotiations evolve, Schieldrop stated in the report.
“The current leadership in Iran now seems to be dominated by real hardliners. Willing to sustain pain and time in order to get what they want. That is not promising for a near term deal,” he warned.
Looking at the physical market in the report, Schieldrop said spot crude and product prices “have eased somewhat since the highs in the first part of April”.
“Part of that reflects some adaptation in global oil flows,” he noted.
“The system has managed, to a degree, to reroute and cope with the initial shock. Another part has been optimism that a U.S.-Iran deal is near at hand. But the trend downwards in crude and product spot prices since early April is one of adaption and optimism,” he added.
“If the SoH isn’t opened rapidly, then that trend will not be sustained, because the underlying fundamental trend is that of significant physical deterioration as long as the SoH is closed,” he continued.
Schieldrop went on to state in the report that “the key question is thus timing of the reopening”.
“The market may now be on the verge of a shift from ‘a deal is imminent’ to ‘this may take much longer’,” he said.
“If the expectation of an early May reopening breaks, and is replaced with something more open-ended – June, July, or later – then prices will likely reprice higher, both in crude and products,” he warned.
“A jump higher in oil prices as optimism for an imminent near-term deal and reopening of the SoH is replaced with more anxiety filled realism and uncertain reopening may be near at hand,” Schieldrop concluded.
Rigzone has contacted the White House and the Iranian Ministry of Foreign Affairs for comment on the SEB report. At the time of writing, neither have responded to Rigzone.
Restoring Normal Flows Unlikely to be Smooth
In a statement posted on Saxo Bank’s website on Wednesday, Saxo Bank Head of Commodity Strategy Ole Hansen warned that, “even in a scenario where the Strait remains open, the process of restoring normal flows is unlikely to be smooth”.
“Tankers are out of position, supply chains dislocated, and the task of re-aligning vessels with loading and discharge points may create a logistical bottleneck in the weeks ahead,” he stated.
“A reopening in principle does not translate into an immediate recovery in effective supply,” Hansen added.
The Saxo Bank Head highlighted in the statement that, “with more than 500 million barrels of lost production, potentially rising towards one billion, even a full normalization, which is likely months away, would still leave the market in a much tighter situation than before, potentially lifting the price floor in crude oil by around $10-15 compared to what it was before the war started”.
“In the meantime, current tightness – especially in refined products – is expected to persist,” he warned.
“This reflects not only disrupted crude flows but also the uncertain state of refinery infrastructure across the Persian Gulf, where damage assessments are only now beginning to emerge,” he added.
Hansen pointed out in the statement that jet fuel prices have more than doubled since the war began, noting that the market continues to tighten, “forcing airlines globally to cancel flights or raise fares”.
The Saxo Bank Head went on to state that, following an eventual reopening of the Strait, “upstream constraints add further delays”.
“Production cannot resume at scale until storage tanks are sufficiently drawn down,” he highlighted.
“Only then can wells begin to reopen – an operational process that may take weeks or longer depending on field conditions and infrastructure damage,” he added.
Hansen concluded the statement by noting that, “while the underlying physical market remains constrained, near-term price action is driven by attempts to gauge the true extent of disruption, with demand destruction, sentiment and positioning playing a key role”.
“Demand softness has temporarily masked the severity of supply losses, but this is unlikely to persist,” he said.
“Logistical delays, refinery disruptions and a slow upstream recovery point to continued tightness in refined products, leaving a risk of renewed upside pressure the longer a peace deal remains elusive,” he continued.
To contact the author, email
