Oil: Strait risks and reserves shape outlook – Commerzbank

Commerzbank’s Carsten Fritsch highlights how Brent and WTI have reversed an initial war-driven spike and stresses that the Iran conflict and Strait of Hormuz blockade remain central for Oil, while G7 reserve releases and large OECD stocks could only temporarily offset lost Gulf supply.

Hormuz blockade dominates Oil dynamics

"Oil prices experienced a rollercoaster ride at the beginning of the week. At the opening of trading on Monday, they rose by more than 20% to USD 120 per barrel, the highest level since June 2022. Over the course of the day, prices largely gave up their gains."

"Releasing oil from strategic reserves could temporarily cover the supply shortfall until transporting oil through the Strait of Hormuz becomes possible again. However, it is questionable whether releasing strategic oil reserves would have the same price-dampening effect as it did four years ago if the Strait of Hormuz remains closed for an extended period of time. During yesterday's consultations, the G7 finance ministers decided against an immediate release."

"A larger expansion would theoretically be conceivable in the United States because the significant rise in oil prices since the start of the war has made drilling for shale oil lucrative again. However, shale oil producers must also be certain that oil prices will remain high enough for several months. This is by no means assured, because oil prices are likely to quickly shed the gains they have made since the beginning of the month if oil supplies through the Strait of Hormuz resume."

"The measures discussed cannot adequately replace the prompt resumption of oil shipments through the Strait of Hormuz. Efforts should therefore focus primarily on making this transport route safe to navigate again as quickly as possible."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)