Crude is expected to trade above $80 as war fears are integrated into longer-term expectations within global oil markets

Oil markets worldwide anticipate a long phase of high prices and increased volatility amid worries about potential continued disruption of oil supplies from the Middle East region, despite the optimistic prospect of negotiations between the US and Iran. The latest Bloomberg Intelligence poll of 126 asset managers and energy analysts found that traders are now becoming more optimistic about maintaining high prices for oil due to geopolitical uncertainty for the next year, with Brent crude seen averaging between $81 and $100 a barrel.

The results highlight the growing worries that the closing and disruption in relation to the Strait of Hormuz, which carries close to 20 per cent of the world’s oil resources, may affect the global energy market even after the crisis.

However, Brent crude was making a climb back towards the $106 level per barrel after having fallen by an alarming 5.6% just one day prior, following remarks made by US President Donald Trump that the talks between the two countries were in “their final stages.” In spite of occasional bouts of optimism concerning diplomacy, there is an extreme amount of scepticism on the part of both the traders and analysts regarding a speedy resolution to the conflict.

“Oil markets continue to be too sensitive to Iranian headlines,” stated ING’s Commodities Strategists Warren Patterson and Ewa Manthey in a research note, pointing out that investors have consistently been overoptimistic about reaching an agreement between the US and Iran.

More than 40 % of those surveyed by Bloomberg Intelligence believe that “demand destruction,” which refers to reduced economic activity and reduced demand for fuels due to rising prices, will eventually be the most important balancing factor in the market despite the “most severe disruption of supply in modern oil history.”

The other 21 % thought that logistical redirections would be able to compensate for the shortage of supply in part, while 13 % considered OPEC+’s spare production capacity and policy responses as major stabilization measures. However, the most worrisome indicator arose from the responses of those 12 % who thought that “nothing will materially offset the disruption.”

Iran’s decision to exert control over ship movements in the Strait of Hormuz by establishing an organisation called PGSA, which regulates the ship movements in the strait, marks a worsening situation that followed Iran’s previous threat to charge toll fees from ships that would pass the strait.

However, even though tanker movement is now occurring, the traffic is still significantly below usual capacity. The tracking data has shown that only a small percentage of traffic has resumed in spite of claims by Iran. The sustained disruption is now causing concerns about a more structurally tight oil market that will last until 2027.

Group Chief Executive Officer of Adnoc, Sultan Al Jaber, issued a statement this week stating that even in the case of an immediate cessation of hostilities, oil production in the Middle East region will return to normal only by 2027 due to numerous logistical and insurance issues. This is the worst case of disruption of supply ever recorded, he added.

It is among the rare Gulf producers that have managed to decrease dependency of its exports on the Hormuz chokepoint by virtue of an alternate infrastructure. The 380km long pipeline from Abu Dhabi Habshan-Fujairah will facilitate oil exports without moving through the Strait, thus enabling almost 1.5 million barrels per day to flow into the Gulf of Oman.

Nevertheless, according to the analysts, any contingency structure could reduce but not nullify the effects of regional instability.