Oil prices could hit $150 per barrel if hostilities between the United States and Iran escalate further from the current, most testing period in the ceasefire, according to intelligence firm Rystad Energy.
Renewed hostilities would further deepen the supply shut-ins in the Middle East as the war risk and the near-closed Strait of Hormuz continue to pressure upstream production, the Norway-based energy research company said.
“At this stage, it is too early to say whether the current escalation marks a full resumption of hostilities or a dangerous but still containable episode,” Jorge Leon, senior vice president and head of geopolitical analysis at Rystad Energy, said, as carried by Business Standard.
Early on Thursday, oil prices spiked in Asian trade as the U.S. carried out strikes in Iran, while Tehran declared the Strait of Hormuz is closed again.
The latest escalation started with the downing of a U.S. Apache helicopter near the Strait of Hormuz on Tuesday, with the U.S. responding by hitting targets in Iran. U.S. Central Command also disabled a tanker in the Gulf of Oman as it tried to break the U.S. blockade of the Strait and failed to comply with orders from U.S. forces.
The current escalation is seen as the most serious test of the fragile ceasefire that has been in place since early April.
Meanwhile, traffic through Hormuz has been rising with vessels switching off transponders and transiting dark-mode, further complicating the oil market’s ability to track how much supply is actually flowing through the chokepoint now. Some estimates point to 2 million barrels per day (bpd) moving through Hormuz daily, but this is still one-tenth of the oil transiting the Strait before the war.
Even top executives at major oil companies have started to warn of $150 oil as inventories that have helped offset part of the massive supply loss so far are nearing rock-bottom levels.
“We’re approaching unheard of inventory levels. I mean, really, really low levels,” Neil Chapman, Exxon’s Senior Vice President, said at the Bernstein 42nd Annual Strategic Decisions Conference at the end of May.
“I think dated Brent, most people with a model would say dated Brent will shoot up once you get to that really low inventory level, up to $150, $160 — the models would tell you that.”
By Tsvetana Paraskova for Oilprice.com
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