Alarm bells will ring loudly if the Strait of Hormuz does not reopen during May, Skandinaviska Enskilda Banken AB (SEB) Chief Commodities Analyst Bjarne Schieldrop stated in a report sent to Rigzone on Monday.
“Spot crude and product prices will trade higher and higher,” Schieldrop warned.
“And if a decent reopening doesn’t take place before June/July, then the risk is significant for a real crisis where the world may be forced to reduce its oil consumption closer to the level of availability,” he added.
“Global oil demand may have declined by close to five percent (five million barrels per day) already according to Gunvor group. That equals direct reduced economic activity. Oil not consumed equals activity not done,” he continued.
Schieldrop highlighted in the report that bets on a reopening of the Strait of Hormuz are slipping further into the future.
“The latest polymarket in the U.S. is only pricing a 37 percent for a partial reopening before May 13, a reopening before June 30 of only 56 percent, [and] close to 50/50 for a partial reopening over the coming two months,” he said.
“That is alarming. Bets for when the Strait of Hormuz will reopen keep sliding into the future,” he warned.
In the report, Schieldrop pointed out that the Brent June contract rose 16.5 percent last week “as the market flipped from the ‘Strait of Hormuz is fully open’ on Friday to ‘not open anyhow’ last week”.
“Brent traded in a range of $92.75-107.48 per barrel and ended at $105.33 per barrel. The Dated Brent spot price, which is based on trades in physical North Sea oil cargoes with loadings now mostly in the month of May, closed the week at $112.91 per barrel,” he added, noting that this was “not surprising given the structure of the forward curve is trading higher than deferred contracts like the Brent financial June contract”.
“The June contract is up 2.1 percent this morning to $107.54 per barrel as tentative negotiations between the U.S. and Iran faltered to nothing this weekend,” Schieldrop stated.
The SEB analyst noted that Iran is now saying that it will reopen the Strait of Hormuz if the U.S. ends its blockade of Iranian oil exports.
“Then they can negotiate the nuclear issue later. i.e. kicking the can down the road,” Schieldrop said.
“There has been some optimism in Asian equity markets on the back of this, but that may be more to do with positive U.S. equities on Friday. Brent crude is trading up and not down this morning – so no optimism for reopening filtering in there,” he added.
Schieldrop went on to warn in the report that the world is “living on borrowed barrels and on borrowed time until the Strait of Hormuz reopens”.
“A global recession is guaranteed if the Strait of Hormuz doesn’t reopen in time,” he said, noting that equity markets “are still pricing ‘don’t worry, the Strait of Hormuz will reopen in time to avoid full disaster’”.
Rigzone has contacted the White House and the Iranian Ministry of Foreign Affairs for comment on the SEB report. At the time of writing, neither have responded to Rigzone.
In a video posted on the X account of Rapid Response 47, and reposted by the White House X account on April 25, U.S. President Donald J. Trump said, “you probably heard that we canceled the trip [for Iran talks]”.
“We have all the cards. We’re not going to spend 15 hours in airplanes all the time, going back and forth, to be given a document that was not good enough. So, we’ll deal by telephone, and they can call us any time they want,” he added.
In a statement posted on his X account on April 24, Iran Foreign Minister Seyed Abbas Araghchi said, “embarking on timely tour of Islamabad, Muscat, and Moscow”.
“Purpose of my visits is to closely coordinate with our partners on bilateral matters and consult on regional developments. Our neighbors are our priority,” he added.
In a follow up statement posted on his X page on April 25, Araghchi said, “very fruitful visit to Pakistan, whose good offices and brotherly efforts to bring back peace to our region we very much value”.
“Shared Iran’s position concerning workable framework to permanently end the war on Iran. Have yet to see if the U.S. is truly serious about diplomacy,” he added.
Headline Moves Understate Severity of Market Tightness
In a commodities note sent to Rigzone on Friday, Ole S. Hansen, Head of Commodity Strategy at Saxo Bank, highlighted that Brent and WTI crude “both posted solid weekly gains … leaving them around 80 percent higher year to date”.
Hansen noted, however, that these headline moves continue to understate the severity of the physical market tightness.
“Instead, the clearest signs of stress are found in middle distillates,” he pointed out.
“Gas oil (diesel) surged 15 percent on the week and is now up 110 percent year to date, while NY ULSD climbed 14 percent and has more than doubled this year,” he added.
“Gasoline has also rallied strongly, but to a lesser extent, reflecting a combination of seasonal demand and availability of supply from gasoline-rich refinery activity in the United States,” he continued.
Hansen warned that the divergence between crude and refined products reflects a structural bottleneck.
“While crude supply has been severely disrupted by the near shutdown of Hormuz flows, the ability to process and distribute refined fuels has been even more constrained,” he said.
“Refinery outages, limited spare capacity, and logistical disruptions have all contributed to a situation where the availability of usable fuels – not crude itself – is becoming the primary concern,” he noted.
“This is increasingly visible across the global economy,” Hansen warned.
In the note, Hansen pointed out that, “despite the severity of the disruption, crude prices have been partly capped by growing evidence of demand destruction”.
“Higher prices and shortages have already reduced consumption, with demand destruction estimated at four to five million barrels per day, or around five percent of global demand, mainly impacting Asia,” he added.
“This combination of demand destruction and inventory drawdowns has helped cap crude prices, even as the physical market for refined products continues to tighten,” he continued.
Hansen went on to warn in the note that even a full reopening of the Strait would not lead to an immediate return to normal conditions.
“The disruption has created a complex logistical challenge that will take time to resolve,” he said.
“Tankers carrying crude, refined products and LNG are currently stranded, delayed, or positioned in the wrong locations. Clearing this backlog will take weeks, as vessels are sequenced through ports that are themselves operating under constrained conditions,” he added.
“Beyond shipping, regional refining capacity remains uncertain, with reported damage and disruptions likely to constrain output of key fuels such as diesel and jet fuel. Storage presents another bottleneck, as tanks may be near capacity after prolonged export disruptions, delaying any meaningful production restart,” he continued.
Hansen also noted that restarting production is not instantaneous.
“Oil and gas wells that have been shut in require careful management to bring back online, and in some cases, this can take weeks or longer,” he pointed out.
“The combined effect of these factors is that normalization will be measured in months, not days,” he said.
“In the meantime, the loss of supply during the disruption – potentially approaching one billion barrels before normalization – will continue to be felt through lower global inventories, effectively raising the floor for how far oil prices may fall once the initial reopening-driven flush has run its course,” he said.
To contact the author, email andreas.exarheas@rigzone.com