Morgan Stanley Says Strait of Hormuz Blockade Is Key Variable, Oil Prices Could Hit $150 in Worst-Case Scenario

TradingKey - According to Bloomberg, citing analysts from Morgan Stanley ( MS ), the global crude oil market is in a critical "race against time" phase, where the duration of the Strait of Hormuz blockade has become the core variable determining oil price movements.

The bank's analyst team warned in a report titled "Race Against Time" that if the blockade of the strait persists beyond June, the buffers currently suppressing a price surge will gradually lose their effectiveness, potentially triggering a fresh round of significant rallies in international crude prices.

Since the escalation of the U.S.-Iran conflict in late February, the Strait of Hormuz has been at a near-total standstill under a dual blockade, yet international oil prices have not yet surpassed the peaks reached during the 2022 Russia-Ukraine conflict.

The team, including Morgan Stanley analyst Martijn Rats, believes that several buffering factors have combined to slow the rise in oil prices. Specifically, the ample inventories accumulated in global markets before the crisis served as the first line of defense, while widespread investor expectations that the strait will eventually reopen have effectively curbed panic buying. Additionally, a surge in U.S. crude exports coupled with a simultaneous slowdown in Chinese crude imports has formed a buffering mechanism to offset supply gaps.

Prolonged Blockade Fuels Bullish Outlook for $150 Oil

However, this fragile balance is facing severe challenges.

According to Morgan Stanley estimates, global oil inventories declined at a rate of approximately 4.8 million barrels per day between March 1 and April 25, marking an extreme peak for such a period on record. Crude oil inventories accounted for 60% of the decline, with the remainder coming from refined product inventories.

Goldman Sachs ( GS) has issued a similar warning, noting that current total global oil inventories (including visible and shadow inventories, crude oil, and various refined products) are only sufficient to cover 101 days of global demand. This figure is expected to drop to 98 days by the end of May, approaching the inventory lows of the past eight years.

Morgan Stanley further pointed out that there is increasing uncertainty regarding whether the U.S. can sustain its current high-intensity export levels over the long term, as domestic supply capacity appears to be under unsustainable pressure. Should the blockade persist until late June or even July, the cushioning effect of U.S. exports will significantly diminish, forcing Brent crude prices to face the upward pressure that had previously been avoided.

Based on its assessment of the situation, the bank's current base case forecast is that physically-settled Brent crude oil futures will average $110 per barrel this quarter, $100 per barrel over the next three months, and $90 per barrel from October to December.

However, in a bullish scenario where the blockade lasts longer, Morgan Stanley expects Brent crude prices could rise into the $130 to $150 per barrel range.

Market concerns regarding a prolonged blockade are mounting. Goldman Sachs' latest investor survey shows that a majority of respondents expect logistical disruptions in the Strait of Hormuz to persist beyond the end of June, with 43% believing that shipping operations will not return to normal until after July.

Saudi Aramco CEO Amin H. Nasser also warned that even if the Strait of Hormuz reopens to traffic, it will take considerable time for global energy markets to stabilize. He noted that the roughly 1 billion barrels of oil supply lost globally over the past two months will have a lasting impact on the market, as supply chain reconfiguration and inventory replenishment both require time.

Widening Rift in US-Iran Negotiations Pushes Up International Oil Prices

The rift in U.S.-Iran ceasefire negotiations continues to widen. Iran's latest ceasefire proposal was publicly slammed by U.S. President Donald Trump, who called the offer "completely unacceptable" and accused Iran of long-standing foot-dragging and perfunctory tactics in the talks.

The core of Iran's latest proposal is a demand that the U.S. Treasury's Office of Foreign Assets Control (OFAC) lift all sanctions related to Iranian oil sales within 30 days. However, the proposal did not address the primary U.S. demand: that Iran provide explicit prior commitments regarding its nuclear program and the disposition of its highly enriched uranium stockpiles.

Israeli Prime Minister Benjamin Netanyahu also issued a stern warning, stating in an interview that U.S.-Israeli military operations against Iran have not ended. He insisted that Iran's highly enriched uranium must be completely removed and related facilities dismantled, undoubtedly escalating regional tensions; the potential risk of further strikes against Iran through "kinetic means" remains high.

The already fragile truce is now facing a severe test, as the U.S. and Iran remain unable to reach an agreement on ceasefire conditions and the reopening of the Strait of Hormuz.

On May 11, following reports that Trump had rejected Iran's peace proposal, international oil prices reacted instantly, with Brent crude futures rising as much as 4.6% to reach $105.99 per barrel.