Capital Economics says oil prices will not fall as sharply as they did after the first Gulf memorandum of understanding, even if reports of an imminent deal to reopen the Strait of Hormuz prove accurate, because less crude is currently trapped in the region. The firm also flags the pace of Gulf output recovery, thinning emergency stockpiles, and lower European gas storage levels heading into winter.
Capital Economics says oil prices are unlikely to fall as sharply this time if the Strait of Hormuz reopens, even though reports suggest a deal to do so is imminent. The research firm says less oil is currently trapped in the Gulf now than in June, so the rush of departing tankers will be smaller than after the first memorandum of understanding, and prices won't fall as far this time.
Tanker traffic still below normal levels
Traffic through Hormuz and the wider Middle East slumped to a near-standstill after fighting resumed following the prior memorandum of understanding, and has stayed well below usual levels in recent weeks, Capital Economics said. The picture is complicated by "dark" transits, in which ship operators switch off their transponders.
The firm cautioned that any new U.S.-Iran deal could still fall apart, particularly once talks turn to Iran's longer-term nuclear ambitions. It also noted that the Houthi blockade of Saudi exports through the Bab el-Mandeb Strait shows the risk to Gulf supply reaches beyond Hormuz.
Gulf output remains short of pre-war levels
Middle East oil exports were still about 9 million barrels per day below pre-war levels in July. Oil executives have generally indicated that most pre-war crude oil production and refinery capacity could be restored within a few months, Capital Economics said. Qatar Energy's head has said 17% of the country's liquefied natural gas production capacity will be offline for two to three years because of Iranian strikes, though the North Field expansion project could offset some of that loss.
Emergency stockpiles are running down
According to Capital Economics: commercial oil stocks could still "flirt with severely depleted levels" in the third quarter, even with a swift reopening. IEA members have released 400 million barrels of emergency stocks, offsetting losses at a rate of 2-3 million barrels per day, but that buffer is set to run out by early-to-mid September. Middle East oil exports would need to rise by 2-3 million barrels per day over the next month, or the IEA would need to announce another release of strategic reserves, to keep the global oil market from tightening further.
China, U.S. exports and European gas storage
Offsetting factors include a sharp drop in China's crude imports and a pickup in U.S. petroleum exports, Capital Economics said. The firm flagged one tail risk, though: President Trump's frustration over gasoline prices could lead to a U.S. ban on oil product exports.
China could keep imports near current levels for many more months, possibly into 2027, Capital Economics said, depending on how willing policymakers and firms are to draw down inventories. European natural gas storage levels are lower than in recent years heading into winter, Capital Economics added, so near-term price relief from a Hormuz reopening will be limited.
The firm's baseline forecast sees Brent crude ending the year at $75 a barrel, with EU natural gas prices remaining near current levels of €50-55 per MWh through the winter.
Source: Investing.com
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