The Middle East crisis and the still closed Strait of Hormuz have created a “super-squeeze” in oil markets, which could lead to sharp price spikes, analysts at HSBC say.
Prices have rallied in recent months not because of some “super-cycle” but because of the massive supply disruption and an actual squeeze in physical supply, the UK-based bank said in a note carried by Bloomberg.
“The longer the strait is closed, the more inventories are run down, the more likely it is that we reach ‘tipping points’ in the markets for some commodities,” HSBC’s analysts said in a report dated June 1.
But it’s difficult to pinpoint the exact time these tipping points will occur, they wrote.
The entire commodities complex is in a super-bull phase, but that’s due to super-squeezes rather than super-cycles, according to HSBC.
Specifically for oil, global inventories “may reach critical functional lows, which could see sharper — non-linear — price rises and genuine shortages,” the bank’s analysts wrote.
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Last month, Morgan Stanley’s oil strategists warned that most of the market buffers that have stopped oil futures prices from rallying to record highs could vanish before the reopening of the Strait of Hormuz, which puts the market in a “race against time.”
Reduced overall crude imports into China and soaring exports from the United States have so far managed to partly offset the massive supply disruption due to the closure of the Strait of Hormuz.
If the Strait of Hormuz remains closed for a longer time than the U.S. and China could sustain with the tweaked levels of their crude oil exports and imports, respectively, Dated Brent could surge to as high as $150 per barrel, according to Morgan Stanley.
Ole Hansen, head of commodity strategy at Saxo Bank, said on Tuesday that “Beneath the headline-driven volatility, global energy markets continue to tighten, with the main focus remaining on the Strait of Hormuz, a vital shipping artery that remains effectively shut, sustaining concerns about supply disruptions and elevated energy prices.”
By Tsvetana Paraskova for Oilprice.com
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