With the war in Iran and oil prices moving higher, we know there is a lot of uncertainty around LatAm O&G right now, and we wanted to bring more clarity to the situation.
"Forecasting is difficult, especially about the future", (attributed to, among others, Danish physicist Neils Bohr). Reality is Strait not open and no one can say when it will be. There is no clarity except what we see today. Delving into the physical reality, looking at forward price trends, among oil traders there's grudging but growing acknowledgement oil will be higher for longer and $70 bbl looking aspirational, more like a distant dream, a year or more out. The March/April futures shorting trade depressing oil price is no longer working so well. As of May 15, US-government derived intelligence claims Iran has around 70% of the missile capacity and 90% of underground storage and launch capability they had on Day 1. Thirty of 33 missile launch sites along the Strait of Hormuz are operational. If accurate, it's indicative of a group maintaining strategic leverage. They're at the poker table with a strong hand and know it, no reason yet to fold. Tanker owners and shipping insurers are certainly taking that into account. Prices for both are not diminishing anytime soon. For those countries without, strategic oil reserves likely in future plans; and for those with, they'll need refilling. There needs to be an oil glut to get prices down. The World is currently around 1.3 billion barrels down from where we would have been, with the number growing daily. Any way you slice it, the world is missing 10-11 million barrels a day and meaningful supply is not being added as quickly as needed.
These are fair points and we recognize the market reality. The supply deficit is growing daily, the Strait remains closed, and crude traders increasingly accept that prices will stay elevated. We are not ignoring these factors.
Where we differ is on Iran's ability to sustain this posture. Iranian missile capacity is down to an estimated 70% of day-one levels, and severe damage to production infrastructure makes rebuilding slow.
Meanwhile, the domestic economy is deteriorating rapidly. The IMF projects a 6.1% contraction in 2026 with inflation approaching 70% as the rial plummets. Tehran can maintain geopolitical leverage temporarily, but its window narrows every week.
Our view is not that oil falls to $70 immediately. While the conflict continues, $85 to $100 remains the realistic range. The $70 level comes later, once the Strait reopens and the risk premium fades.
We believe intense economic pressure on Tehran makes that reopening likely sooner than the market assumes. We acknowledge the timing risks, but we remain comfortable with this directional view.
My base case is Oil won’t stay for too long, but that’s already reflected on the forward curve. 2027 wti is still around $70 average. But it won’t go too low either. Look at the crack spread, and potential strategic reserve more countries would build. We may see a more stickier price from 2022. Unless something happens like 2008…
I follow Brent more, but would say new oil floor could be $70, but I would expect Oil to come down to 75-80 in following months. And staying at this level. But could also be wrong, but thats why it is a fun game!
Excellent article. I also agree that oil prices won't stay elevated for long
Thanks a lot mate!
"Forecasting is difficult, especially about the future", (attributed to, among others, Danish physicist Neils Bohr). Reality is Strait not open and no one can say when it will be. There is no clarity except what we see today. Delving into the physical reality, looking at forward price trends, among oil traders there's grudging but growing acknowledgement oil will be higher for longer and $70 bbl looking aspirational, more like a distant dream, a year or more out. The March/April futures shorting trade depressing oil price is no longer working so well. As of May 15, US-government derived intelligence claims Iran has around 70% of the missile capacity and 90% of underground storage and launch capability they had on Day 1. Thirty of 33 missile launch sites along the Strait of Hormuz are operational. If accurate, it's indicative of a group maintaining strategic leverage. They're at the poker table with a strong hand and know it, no reason yet to fold. Tanker owners and shipping insurers are certainly taking that into account. Prices for both are not diminishing anytime soon. For those countries without, strategic oil reserves likely in future plans; and for those with, they'll need refilling. There needs to be an oil glut to get prices down. The World is currently around 1.3 billion barrels down from where we would have been, with the number growing daily. Any way you slice it, the world is missing 10-11 million barrels a day and meaningful supply is not being added as quickly as needed.
Thank you for your great comment David.
These are fair points and we recognize the market reality. The supply deficit is growing daily, the Strait remains closed, and crude traders increasingly accept that prices will stay elevated. We are not ignoring these factors.
Where we differ is on Iran's ability to sustain this posture. Iranian missile capacity is down to an estimated 70% of day-one levels, and severe damage to production infrastructure makes rebuilding slow.
Meanwhile, the domestic economy is deteriorating rapidly. The IMF projects a 6.1% contraction in 2026 with inflation approaching 70% as the rial plummets. Tehran can maintain geopolitical leverage temporarily, but its window narrows every week.
Our view is not that oil falls to $70 immediately. While the conflict continues, $85 to $100 remains the realistic range. The $70 level comes later, once the Strait reopens and the risk premium fades.
We believe intense economic pressure on Tehran makes that reopening likely sooner than the market assumes. We acknowledge the timing risks, but we remain comfortable with this directional view.
My base case is Oil won’t stay for too long, but that’s already reflected on the forward curve. 2027 wti is still around $70 average. But it won’t go too low either. Look at the crack spread, and potential strategic reserve more countries would build. We may see a more stickier price from 2022. Unless something happens like 2008…
I follow Brent more, but would say new oil floor could be $70, but I would expect Oil to come down to 75-80 in following months. And staying at this level. But could also be wrong, but thats why it is a fun game!
Yeah. That’s the base case and what the forward curve reflected.