According to the head of commodity and derivatives research at Bank of America, under his most optimistic oil price scenario, Brent crude prices will average $90 per barrel for the remainder of the year. If the impasse with Iran persists or escalates due to new conflicts, prices could climb even higher.
Francisco Blanch of Bank of America stated on Monday that a decline in oil prices depends on the resolution of the U.S.-Iran standoff over the blockade of the Strait of Hormuz, which is currently disrupting freight traffic in the Persian Gulf. He indicated that the current arithmetic is clear: global supply is too tight to allow for a drop in prices at present.
"We are facing a significant supply deficit," Blanch said. "To see prices stabilize and fall back to $60 or $70 per barrel, we have a deficit of 14 to 15 million barrels per day, which is a 14% to 15% supply shortfall."
This forecast highlights the potential for sustained economic damage from prolonged high oil prices, following the surge in Brent crude by 80% this year to $109.26 per barrel as of last Friday, driven by the conflict with Iran. The effective paralysis of the Strait of Hormuz, a waterway that carries one-fifth of global supply, is hitting the Asia-Pacific region hardest and also putting pressure on consumers and industrial users worldwide.
Blanch's remarks came shortly after Iran's Tasnim News Agency reported that the U.S. had proposed a temporary exemption from sanctions on Iranian oil. While the U.S. has not confirmed this proposal, if true, it would meet a key condition set by Iran for reaching a peace agreement and reopening the strait.
Blanch stated that the swift restoration of oil supply is the most desirable outcome. He added that if the so-called double blockade continues, it could lead to a gradual rise in prices to $120 or $130 per barrel by late June or early July.
His third scenario is the worst-case: a resumption of military action. "In that case, the situation could become much more volatile, and oil prices could rise sharply," Blanch said. This risk stems from the potential for further damage to oil infrastructure, which could restrict supply for an extended period even after the Strait of Hormuz reopens.
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