Oil prices could rocket to a record $200 a barrel if the war in Iran continues until June. The warning from Macquarie Group (MCQEF) hinges on the vital Strait of Hormuz remaining closed to the vast majority of shipping during that period.
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One in Two Chance
Analysts including Vikas Dwivedi said that the chances of a conflict stretching through the second quarter and resulting in historically high real prices, have pretty high odds of 40%. Nearly a one in two chance or flip of a coin.
An alternative outlook, with a probability of 60%, suggests that the war may finish at the end of this month.
President Trump has said negotiations over a potential peace deal with Iran have been positive and has extended a deadline to start pounding Iranian energy facilities by another ten days. However, despite Trump’s bullishness, Iran keeps denying talks are taking place and are continuing to fire missiles at Gulf states and Israel and keep the Strait closed.
Magnitude of Disruption
That disruption to oil supply has seen the price of Brent crude leap 30% in the last month – see below. Indeed, Brent crude is on pace for a record monthly gain in March.
It has also boosted oil ETFs such as the Invesco Dynamic Energy Exploration & Production ETF (PXE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
“If the strait were to stay closed for an extended period, prices would need to move high enough to destroy an historically large amount of global oil demand,” Macquarie analysts said. “The timing of the re-opening of the straits, and physical damage to energy infrastructure, is the main determinant of the longer-term impact on commodities.”
The closure of the strait “has sent both crude and refined-product prices soaring due to the magnitude of the disruption,” the analysts said. In pre-conflict times, the waterway saw daily transits of about 15 million barrels of crude, as well as 5 million barrels of refined-products.
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