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Oil is entering a cycle in which persistent supply shortages drive up prices, says HFI Research.
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The firm is watching crude oil inventories decline around the world.
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Even after the peace deal, it will take months for oil supplies to return to the market, he added.
Peace between the United States and Iran remains elusive, but don’t expect oil prices to drop anytime soon even if a deal pans out, according to a research firm.
HFI Research, an investment research firm focused on energy and commodities, said it believed the oil market had reached a “breaking point” two months after the Iran war and that the supply disruption would be long-term.
Even if the U.S. and Iran strike a deal this week, the market will face acute shortages and eventual demand destruction, largely due to already damaged refining capacity, the firm said in a note on Sunday.
“The oil market breaking point is here. Global onshore oil inventories are going to decline, and the decline will happen at a pace that no one has seen before,” HFI wrote.
“If the Strait of Hormuz remains closed in April, no one will be able to tell where the oil price is at the top. We will be too far into the Rubicon,” the firm added.
HFI, which first predicted oil would reach a breaking point at the end of March, believes the market is now headed for a repeat cycle in which physical oil shortages drive prices higher. This is mainly due to limited oil refining capacity in the Middle East, it said, estimating that the war has pushed global refinery outages to 5 million barrels per day.
Higher oil prices put pressure on refining profits, as oil prices are rising faster than the prices of refined products. That would cause refiners to cut production, leading consumers to burn through oil and gas inventories faster, the firm speculated.
HFI expects most Asian refiners to “scramble for barrels” by the first week of May. Europe will also begin to feel the pain of supply shortages by then, and the US will bring its commercial oil reserves to about 400 million barrels, above the “operating minimum” of about 380 million barrels, the firm said.
The firm estimates the cumulative volume of oil reserves at the closure of the Strait of Hormuz to be about 1 billion barrels. The shortage is on track to reach 1.98 billion barrels by the end of June, it added.
Even if a “long-term peace deal” is reached with Iran this week, restoring oil supplies could take months, HFI said. It is estimated that it will take 30-40 days to transport and offload the barrels ready for market, and another 20 days for the tankers carrying those barrels to return to the point of origin.
