Introduction#
Morgan Stanley strategist Martijn Rats has indicated that oil prices could soar to over $130 per barrel if disruptions in the Strait of Hormuz continue. This situation could lead to a need for much higher prices to manage demand.
Current Supply Situation#
The Strait of Hormuz is a crucial route where approximately 20 million barrels of crude oil and refined products typically pass daily. Recent disruptions have created a supply shock comparable to the significant drop in demand seen during the early COVID-19 pandemic. Rats emphasized that the world is currently facing a shortage of oil that is larger than most typical supply-demand imbalances.
Impact on Refiners and Prices#
Asian refiners, heavily reliant on crude oil from the region, are already feeling the effects of the supply constraints. Some have begun to slow down operations as the availability of oil tightens. This has led to a sharp increase in prices for refined products, with jet fuel in Singapore rising from around $90 to approximately $200 per barrel since the onset of the conflict.
Future Scenarios#
Rats pointed out that the future of oil prices hinges on how much oil can flow through the Strait of Hormuz and for how long. If flows resume quickly, the disruption may be temporary, keeping Brent crude prices in the $80–90 range. However, if the supply remains limited, prices may need to rise significantly to restore balance between supply and demand. In a worst-case scenario, prolonged disruptions could lead to a situation where prices exceed $130 per barrel as the market seeks to reduce consumption.