Standard Chartered: Oil Price Correction Is Likely Overdone
Oil prices have declined by the biggest margin since the Iran war began in late February, with Brent crude for June delivery and WTI for May delivery retreating to the mid-$90s per barrel, alongside falling refined product prices. The United States and Iran agreed to a temporary two-week ceasefire on Wednesday, with Tehran allowing safe passage for shipping vessels through the Strait of Hormuz. The two weeks are intended as a window to finalize a permanent settlement, with formal talks scheduled to begin in Pakistan. However, oil and commodity analysts at Standard Chartered have argued that the oil price correction could prove too deep, and oil prices could spike on any reports of escalation or re-emerging war rhetoric. Previously, StanChart had issued a second-quarter oil price forecast for Brent crude at $98/bbl and WTI at $92.50/bbl. Brent crude for June delivery was trading at $95.57 per barrel at 14.30 pm ET, while WTI crude for May delivery was trading at $96.99/bbl
StanChart notes that near-term price movements continue to take direction from escalation and de-escalation in the Middle East conflict, which has triggered several regional flashpoints, reduced transit through the Strait of Hormuz, and shut-in production from Gulf countries. The analysts note that Brent is in backwardation along the forward curve, with the back of the curve stabilizing at $67-70 per barrel; however, they have predicted that oil prices are likely to remain $10-20/bbl higher than pre-conflict levels, supported by purchasing for strategic reserves and the logistical lags caused by the disruption. Read more