Uche Cecil Izuora
The Chairman Emeritus of energy consultancy FGE NexantECA, Fereidun Fesharaki, has predicted that oil prices could jump to $200 per barrel and even higher if the Strait of Hormuz remains near-closed as it is at the moment.
Although the oil market is moving on sentiment and U.S. President Donald Trump’s social media posts about the war, the fact is that “every week, 100 million barrels of oil is not going through, and every month, 400 million barrels are not going through,” Fesharaki told Bloomberg Television.
“Within a period of time, these losses to the market will be astronomical,” the expert told Bloomberg.
If the situation at the Strait of Hormuz does not improve in the next six to eight weeks, the prices will go through the roof regardless of what President Trump says, Fesharaki noted.
“We are looking at $150 oil first, and $200 oil and beyond $200,” he added.
In a note on Monday, Fesharaki said FGE NexantECA assumed at first that the war and the crisis would run for four weeks, then six weeks, and now it is extending the assumption to 8-12 weeks.
“Assuming 10 per cent flows in the strait and 90% closure, say for another 4-8 weeks beyond the present, this would send oil prices to US$150-200/bbl and spot gas prices to US$40.5/MMBtu or US$250-300/bbl oil equivalent to force sufficient demand destruction,” Fesharaki said.
The International Energy Agency (IEA) will likely do another release of strategic stocks by mid-April and another one possibly in June, according to FGE NexantECA, which also added that “a ‘world without Hormuz’ is becoming a credible scenario – one that could persist for months or longer, forcing structural adjustments across global energy, logistics, and trade flows.”
“In such a case, we have a global disaster on our hands,” Fesharaki said, adding that in that case “There will be a serious global recession, and the economy will suffer for several years.”
Analysts at FGE NexantECA are not the only ones warning of $200 oil if the Strait of Hormuz flows remain choked for a few more weeks.
At the end of last week, analysts at Macquarie Group warned that oil prices could hit a record $200 per barrel if the war in the Middle East drags on through the entire second quarter.