Strait of Hormuz closure could push crude oil to $150: Nuvama report

A Nuvama report warns a prolonged 4-8 week closure of the Strait of Hormuz could push crude oil prices to $150 per barrel. The disruption in the key oil route, handling 20 mbpd, would significantly tighten global supply and impact Asian economies.

Global crude oil prices could surge to as high as USD 150 per barrel if the Strait of Hormuz remains closed for the next four to eight weeks, according to a report by Nuvama.

The report highlighted that the continued closure of the Strait of Hormuz (SoH), which handles around 20 million barrels per day (mbpd) of oil flows, could significantly tighten global supply and push crude prices into the range of USD 110-150 per barrel within four to eight weeks. It added that the disruption has already slowed maritime traffic in the region to a near halt, tightening the global crude balance.

Price Projections and Market Dynamics

The market had initially priced in a disruption of about two weeks, but expectations are now shifting toward a longer outage. According to the report, if the closure continues for an extended period, particularly up to eight weeks, crude prices could approach around USD 150 per barrel. However, it noted that such high price levels would likely trigger demand destruction and encourage alternative supply responses in the market.

The report added that releasing strategic oil reserves could provide short-term relief but may also create demand for future restocking. It noted that releasing around 300-400 million barrels could ease supply pressures in the near term. At the same time, export limitations from West Asia could force shutdowns of around 6-7 mbpd, equivalent to more than 200 million barrels in March, which would keep the global crude market tight.

Regional Impact and Vulnerabilities

The report highlighted that Asian economies are expected to be the most affected by the disruption. Around 13 mbpd of oil shipments to countries such as China, India, Japan and South Korea pass through the Strait of Hormuz. While some countries may rely on their strategic reserves to cushion supply shocks, those with limited reserves could be forced to reduce refinery runs.

Focus on Gas Markets and India

The report also discussed the potential impact on global gas markets. It noted that Qatar's LNG production could restart within two weeks after the reopening of the Strait of Hormuz, as facilities remain undamaged.

The report further pointed out that India remains highly vulnerable to disruptions in the Strait of Hormuz. While crude supplies may remain manageable in the short term, higher LNG prices could lead to reduced imports. Among petroleum products, LPG is expected to be the most vulnerable in case of prolonged disruptions in the region, the report added. (ANI)

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