We just hosted a conference call bringing together BNPP''s expertise on oil and gas markets to discuss the conflict in the Middle East. The speakers were Aldo Spanjer (Head of Energy Strategy, BNPP Markets 360), Chris Jost (Natural Resources Specialist Sales), moderated by Paul Redman (Director, Oil and Gas Equity Research). Key takeaways below:
Update on the ongoing conflict in the Middle East:
. Whilst the conflict is ongoing, developments yesterday signalled a higher likelihood of less damage to energy infrastructure from hereon. Oil prices fell sharply as a result, though our speakers saw this as overdone.
. Our speakers expect the Strait to be closed for at least a few more weeks as Iran maintains their leverage over oil and gas markets during negotiations.
If the Strait re-opens, how long does a re-start take and how long to return to normality?
. Returning to normal flow levels will likely take c. 2-3 months, assuming no permanent damage has been done and that the return of ships through the Strait is relatively efficient.
. Saudi Arabia is the Gulf State that can ramp up the fastest (within a week or two), followed by UAE and Kuwait. Iraqi oil needs at least 1-2 months to return to 3mb/d production.
. The physical constraints mean that this 2-3 month ramp up of both oil and gas is likely be back-end weighted.
What would oil balances look like if the Strait re-opens this week vs in 3 months?
. Aldo Spanjer suggests Brent would trade above USD70-75 by year-end even if the SoH opened this week.
. Countries will likely look to rebuild oil stocks to higher levels, creating increased demand.
. In a scenario where the conflict lasts many more months, Aldo Spanjer sees oil prices surpassing USD 150/bbl.
. Both Chris Jost and Aldo Spanjer highlighted that these are unprecedented times - the market cannot offset the 15mb/d of crude that flows through Hormuz without severe demand destruction (at recessionary levels).
. Demand destruction will need...
