Despite a tentative agreement between the United States and Iran to extend a ceasefire and reopen the Strait of Hormuz, experts predict that it may take considerable time for international oil prices to return to pre-war levels.
MarketWatch reported on June 15 that while the reopening of the Strait could mark the beginning of oil price stabilization, the market will not normalize until crude oil inventories are replenished, shipping costs decrease, and the safe passage of large vessels is confirmed.
According to Dow Jones Market Data, West Texas Intermediate (WTI) crude closed at $80.75 per barrel on that day, approximately 21% higher than the pre-war price of $67.02. Meanwhile, Brent crude, the global benchmark, traded at $83.17 per barrel, about 15% above its pre-war price of $72.48.
Rob Thermal, a senior portfolio manager at Tortoise Capital, stated, "The reopening of the strait is just the first step. To replenish the one billion barrels of crude oil inventory lost due to the war, there may need to be several years of supply exceeding demand in the market."
Since the war began on February 28, the global oil market has faced a supply gap of approximately 1 to 1.5 billion barrels due to production cuts and transportation disruptions. To address this, the U.S. decided in March to release 172 million barrels from its Strategic Petroleum Reserve (SPR), while member countries of the International Energy Agency (IEA) also agreed to release a total of 400 million barrels from their reserves.
Thermal noted that if global oil flows remain uninterrupted and oversupply continues for an extended period, prices could drop to the $60 range. However, he cautioned that it would take at least a year for global oil inventories to recover to a level that would support prices in that range.
Experts also believe that for prices to decline rapidly, an increase in production by the Organization of the Petroleum Exporting Countries (OPEC) and non-member oil-producing countries in the OPEC+ coalition is necessary. Jay Hatfield, chief investment officer at Infrastructure Capital Advisors, suggested that if OPEC+ increases production beyond pre-war levels, the supply shortfall could be quickly addressed.
OPEC+ has already set a production target to increase output by 188,000 barrels per day in July. The reopening of the Strait of Hormuz is expected to alleviate logistical and storage constraints in the Persian Gulf region, potentially enhancing the capacity of oil-producing countries to increase production.
Shipping costs also play a crucial role in the normalization of oil prices. Paul Baris, CEO of the consulting firm Episio, revealed that shipping insurance premiums are currently about ten times higher than pre-war levels. He anticipates that once a peace agreement is signed, insurance rates could begin to decline within days, but it may take at least three to six months to return to pre-war levels.
Baris emphasized the need for confirmed safe passage of vessels, stating that it is essential for more than 100 ships to pass through the strait without incident, rather than just 20 to 30 vessels.
Rebecca Bavin, a senior energy trader at CIBC Private Wealth, added that the duration of any agreement is important, but the messaging surrounding it is also crucial. She noted, "If one side claims the strait is open while the other side issues threats or implies that restrictions remain, that uncertainty will delay normalization."
* This article has been translated by AI.
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