A pumpjack operates in the Permian Basin near Midland, Texas.
Bank of America's (BofA's) commodities and derivatives research chief said his best-case oil-price scenario is Brent averaging $90 for the rest of the year, and the market may go even higher if the stalemate with Iran persists or heats up with fresh fighting. A pullback hinges on an end to the U.S. and Iranian blockade of the Strait of Hormuz that's bottling up shipments from the Persian Gulf, BofA's Francisco Blanch said today on Bloomberg Television's Surveillance. The math problem, he said, is clear: Global supplies are too tight for prices to come down now.
"We have a pretty large deficit," Blanch said. "We were running 14 million, 15 million barrels a day short, 14 percent to 15 percent short, of what we need to see for prices to stabilize, go down to $60 or $70 a barrel."
His outlook underscores the potential for persistent economic disruption from higher-for-longer prices after the Iran war spurred an 80 percent run-up in Brent this year through Friday, to $109.26 a barrel. The effective shutdown of a waterway that carries a fifth of global supply is biting hardest in the Asia-Pacific region but also squeezing consumers and industrial users worldwide.
Blanch spoke just after the semi-official Iranian media outlet Tasnim reported that the U.S. proposed a temporary waiver on sanctions applied to the Islamic Republic's oil. While the U.S. hasn't confirmed that offer, such a development would meet a key Iranian demand for a peace deal and the reopening of the strait.
Restoring those oil flows soon is the optimal outcome, Blanch said. Continuation of the so-called "double blockade" would lead to a gradual grind higher in prices to $120 or $130 a barrel by the end of June or early July, he said.
His third scenario is the direst case: a resumption of combat operations, "when things could get a lot more shaky, with prices going up pretty substantially." The danger is from additional damage to oil infrastructure that would crimp supply long after the Strait of Hormuz reopens, Blanch said.
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