- Oil prices briefly fell below $100 on optimism over a potential U.S.-Iran deal, but rebounded after President Trump said there was “no rush” and confirmed the Hormuz blockade would remain in place.
- Analysts warn the market is underestimating the crisis, with around 14–15 million bpd of supply disrupted, inventories falling rapidly, and the IEA cautioning that oil markets could enter a “red zone” by July or August.
- Energy experts say years of weak investment in new oil supply, combined with the prolonged Hormuz disruption, could push Brent crude into a prolonged $120–$150 per barrel range.
Oil prices opened trade this week with a decline on reports that a deal between the U.S. and Iran was imminent. Brent crude slipped below $100 for the first time in days. But then President Trump said there was no rush on a deal and the U.S blockade in Hormuz would remain. While traders scratch their heads, analysts are warning that crude could remain well above $100 per barrel for years. This is literally uncharted territory for oil. Negotiations with Iran were “proceeding in an orderly and constructive manner,” the U.S. president told media over the weekend, fueling optimism that has actually been a feature of oil markets ever since the Iranian army closed the Strait of Hormuz in response to the U.S. and Israeli missile attacks on the country. Despite the supply crunch that the closure caused, traders remained remarkably certain that it would not last more than a few days, possibly a couple of weeks. Three months in, this optimism remains.
Indeed, oil traders have been boosting their short positions on crude for no less than seven weeks in a row in anticipation of an end to the crisis that has removed some 14 million barrels from the world’s daily oil supply
Rapidly falling inventories, missing Middle Eastern exports, and rising summer demand could push global oil markets into dangerous territory by July or August, the head of the International Energy Agency warned earlier this month. “This may be difficult and we may be entering the red zone in July-August if we don’t see some improvements,” Fatih Birol said. Unlike some earlier warnings that sounded more like a theoretical note, the inventory data increasingly suggest that Birol may actually have a point. Investment in the oil and gas industry has been weak for about a decade, since the U.S. shale boom from the 2010, natural resource analysts and investors Leigh Goehring and Adam Rozencwajg wrote in their latest quarterly commentary. As a result, global production has been largely stalling in terms of growth pace everywhere except in the U.S. shale patch, where growth is slowing down as well. Now, with the Strait of Hormuz closed, the world is in an unprecedented situation of supply tightness.
“The market has never before attempted to function for an extended period with such a large volume impaired simultaneously,” Goehring and Rozencwajg wrote, adding that “The industry appears to have entered another structurally tight phase following years of inadequate capital spending, just as the market confronts an acute physical bottleneck of historic proportions.”
The experts suggested that if the blockade in the Strait of Hormuz extended further in time, $120 to $150 would become the new normal for Brent crude over the next few years—once market players realize the extent of the supply problem, presumably, because right now, this is being grossly underestimated. “At least 15 million barrels per day of supply appears to be directly curtailed. On volume alone, the disruption exceeds every previous oil crisis. Yet dated Brent — still the best measure of physical delivered crude — managed at its peak to exceed its 2008 high by only $4 per barrel,” Goehring and Rozencwajg pointed out, going on to add that “The market, in other words, has been presented with an energy dislocation larger than any previously recorded and has responded as though it were a difficult but ultimately temporary inconvenience.” “Oil moves slowly through the global system,” Goehring and Rozencwajg wrote. “So does information. In both cases, the true condition of the market often reveals itself only after the underlying imbalance has become considerably more serious than first believed.”