Iran’s Tipping Point?

Our Commodity strategists expect oil prices to move higher as de-escalation hopes fade and Strait of Hormuz supply risks reassert themselves. Recent volatility reflect headline-driven uncertainty, with markets swinging between prospects of an imminent Strait reopening and fears of ceasefire breakdown. Our colleagues believe that restraint on prices is unlikely to persist. 

The US blockade is painful for Iran, but may not be sufficient to force Tehran to yield in the short run. Iran's oil sector has weathered repeated shut-ins and restarts, and that pain alone is unlikely to compel capitulation. Our colleagues expect attacks on regional oil supply to increase in the coming weeks as Washington escalates pressure, while negotiations require more pain on both sides before shipping lanes reopen. 

Meanwhile, global oil inventories are being drawn down aggressively to fill the supply gap. Our colleagues view this as a temporary fix: observed stocks are on track to reach a multi-year low by mid-year, and unless the Strait reopens, that drawdown would likely drive crude prices to new wartime highs.