Analysts at JPMorgan, who predict the reopening of the strait in early June, estimate that oil should average $97 per barrel throughout the rest of the year
As the possibility of a peace deal between the US and Iran gains momentum, so do hopes that the significant economic impacts of the conflict can be mitigated.
However, there remains great uncertainty regarding the exact status of negotiations and the specific terms of any agreement, including with regard to the Strait of Hormuz, a vital shipping lane for the passage of much of the world’s oil supply.
But if this really is the end of the war and the straits are about to reopen, what happens next? When will prices return to pre-conflict levels?
It won’t be anytime soon.
Firstly, a complex logistical scenario: Once the strait is reopened, a complicated, multi-step process will have to take place, which includes removing existing congestion, reducing accumulated reserves, restarting production and carrying out repairs.
Regarding oil and gas prices: traders have tried several times to test a new minimum level for crude oil, but it has not fallen below 94 dollars per barrel since mid-March. On Friday, Brent futures closed just above $100 per barrel and, if there is optimism in the markets regarding peace progress, there could be renewed downward pressure when trading reopens on Monday night.
Analysts at JPMorgan, who expect the strait to reopen in early June, estimate that oil should average $97 per barrel throughout the rest of the year.
Historically, Brent needs to be around $60 for the price of gasoline to drop to around $3 per gallon, said Michael Green, chief strategist at Simplify Asset Management. The futures market only predicts this scenario around 2032.
The longer this peace lasts, and the more signs there are of production resuming, the more oil prices could fall.
But there are many “ifs”.
