Time Is Running Out for the Strait of Hormuz, BofA Warns Brent Could Rise Above $200.
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Global crude oil inventories are declining rapidly due to supply disruptions, yet oil prices remain stable. This is attributed to increased U.S. exports and reduced Chinese imports. China's significant decrease in oil imports, accounting for half of the global decline, has buffered price surges. Future oil prices hinge on U.S.-China negotiations regarding Iran. If an agreement is reached by June, Brent crude may trade between $85-$100. Persistence of the blockade beyond June could drive prices to $130-$150, with potential for over $200 according to BofA.
Tradingkey - In its monthly report released on April 13, the International Energy Agency (IEA) warned that global crude oil inventories are shrinking at a record pace due to supply disruptions caused by the war in Iran, which could trigger a further surge in oil prices.
The report pointed out that in the face of unprecedented disruptions to Middle Eastern crude supplies, importing countries are depleting their oil stocks at a record rate.
In April, global inventories of crude and refined products fell by nearly 4 million barrels per day. This drawdown exceeds the combined consumption of the U.K. and Germany, significantly eroding the cushions countries have against supply shocks.
Furthermore, OPEC reports showed that several major producers also reduced crude supply. Saudi Arabia's April daily crude production dropped to 6.316 million barrels, a month-on-month decrease of 651,000 barrels, hitting its lowest level since the 1990 Gulf War and Iraq's invasion of Kuwait; Russia's average daily crude output in April fell to 9.057 million barrels, its lowest level since last June.
From a supply-demand perspective, these two reports should have acted as catalysts for higher oil prices, but in reality, the two major crude futures benchmarks showed little change.
As of press time, WTI crude futures were up 0.09% at $96.90, while Brent crude fell 0.32% to $105.29. Both benchmarks have been hovering near these levels since the conflict initially drove prices up. This leads one to wonder: has the law of supply and demand broken down in the crude oil market?
U.S. and China Address Both Supply and Demand Sides to Restrain Rising Oil Prices
Morgan Stanley's latest analysis suggests that the reason oil prices have not seen an exaggerated rally is likely because the oil markets in the United States and China have "protected" the global economy.
JPMorgan Chase CEO Jamie Dimon echoed these sentiments, noting that shifts in U.S. exports and Chinese imports are likely why the conflict involving Iran "did not have a serious impact" on oil prices.
The report shows that between April 8 and May 8 this year, net exports from major Middle Eastern crude exporters fell by 12.3 million barrels per day year-over-year. Meanwhile, other producers led by the U.S. increased their exports during the same period by approximately 5.5 million barrels per day, partially offsetting this loss.
On the demand side, some oil-importing countries reduced their net imports, particularly China. According to the report, daily seaborne net imports in typically oil-importing countries fell by 10.9 million barrels per day year-over-year, exceeding the net decrease in exports.
Of this, China alone accounted for half of the decline in imports. A year ago, China imported approximately 14 million barrels of crude oil per day, whereas it now imports about 8.5 million barrels per day. Excluding China, countries including Japan, South Korea, India, and Singapore collectively reduced their imports by 3.9 million barrels per day.
What are the key factors to watch going forward? How high will oil prices rise?
In the short term, the most critical catalyst for oil prices is the meeting between the leaders of the U.S. and China. The successful face-to-face meeting in Beijing has helped mitigate risk premiums and stabilize crude oil futures prices. However, the market is more focused on whether Trump can secure China’s assistance in de-escalating the conflict with Iran.
China remains the largest importer of Iranian oil, with more than 80% of Iran’s oil exports projected to be shipped to China in 2025. This increases Beijing's bargaining leverage but also makes the negotiations more complex.
Major investment banks hold slightly differing views on the outlook for oil prices, but all regard May and June as critical junctures. Citi sets late May as the deadline for the negotiation timetable; if no agreement is reached by then, upside risks will further intensify. JPMorgan's projections use mid-May as the turning point. Morgan Stanley identifies June as the threshold for the viability of the U.S.-China buffer mechanism, assuming a restart in its base case. Goldman Sachs views mid-June as the boundary; if the blockade persists until then, it will trigger a pricing logic that "could surpass the 2008 peak."
Synthesizing the views of major investment banks: if the Strait of Hormuz reopens around June under the base-case scenario, Brent's average annual price will moderately pull back to the $85–$100 range. If the blockade is not lifted by June, oil prices will unstoppably climb to the $130–$150 range. BofA analysts have previously noted that Brent could potentially exceed $200 if the situation persists.
This content was translated using AI and reviewed for clarity. It is for informational purposes only.
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