| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 106.73 | 28.99 | 69.13 | 66.04 | 67.00 |
| US WTI ($/b) | 103.91 | 32.68 | 64.32 | 61.63 | 63.23 |
| ICE Gasoil ($/MT) | 1,292.75 | 406.25 | 724.88 | 707.42 | 698.51 |
| Jet CIF NWE ($/MT) | 1,480.10 | 553.46 | 786.53 | 756.04 | 736.60 |
There is no sign of the Strait of Hormuz reopening and Brent has traded above 100 \$/b for the first time since 2022.
The ultimate issue is that around 20% of world oil supply is now unavailable via the Strait of Hormuz blockage. There is now going to be an emergency G7 meeting to discuss a release from reserves and there are commercial inventories which will buy some time. However, if the war and the closure of the Strait of Hormuz continues for an extended period, at some point demand is going to have to fall until it equals available supply. This will require a fall in demand that is comparable to that seen in the Covid pandemic and hence a significant economic shock – a global slowdown or recession.
The question is how high prices need to go for that demand destruction. The all time high for Brent was seen just before the financial crisis in 2008 when prices came close to 150 \$/b. When Russia invaded Ukraine Brent jumped to nearly 140 \$/b but did not stay there long. Perhaps a period in the vicinity of 150 $/b would be needed to bring down demand sufficiently.
Of course it is possible the war ends sooner, although so far it has been very difficult to form a view from the comments of Trump and Iranian leadership. What does seem clear is that the war and the closure of the strait of Hormuz does not look like it is going to be resolved quickly. The storage in the Persian Gulf is filling up quickly; producers are already having to cut back output and that means we are already looking at a lasting impact rather than just a temporary price spike on these disruptions. Restarting after a shut-in is not straightforward and it is possible that the oil reservoir might be compromised in such a way that it is not possible to ever fully restore previous levels of output. The US Office of Foreign Assets Control, which handles sanctions has been signing waivers to allow countries to buy Russian oil, India has got one for 30-days. This will help ease some of the pressure, but it will not come close to replacing volumes that would normally come from the Gulf. Trump is surely under considerable pressure from the Gulf producers, consuming countries and his own party given that the war is not popular in the US and people are worried about rising prices, so perhaps he will wrap things up sooner. In the meantime, though, prices could experience further upward pressure as refineries scramble to secure supplies.
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