Brent: Risk premium drives triple‑digit prices – Societe Generale

Societe Generale analysts Michael Haigh and Ben Hoff say Brent has surged above $100/bbl as Middle East supply losses deepen and flows through the Strait of Hormuz largely cease. They estimate around 17 mb/d of supply is stranded, with most OPEC+ spare capacity trapped.

Record premia and mounting supply risks

"The oil price spike is, for now, driven by elevated risk premia, but upside and real fundamental risks are mounting rapidly. Brent has pushed firmly above the $100/bbl threshold, trading at $107/bbl at the time of writing, previously closing at $92.69/bbl on Friday, as supply losses across the Middle East continue to deepen and uncertainty grows. We assume a longer disruption to transits through the Strait of Hormuz than the original scenario we discussed last week, while continuing to stress the high uncertainty around this timeline."

"Most OPEC+ spare capacity (about 4 mb/d) is trapped behind Gulf export bottlenecks, rendering near‑term policy interventions ineffective. Even Saudi Arabia’s pre‑conflict ramp‑up toward 10.9 mb/d does little to ease global supply unless export routes re‑open. De facto, OPEC+ policy is on hold until the Strait normalises. The G-7 discussing possible joint release at an emergency meeting today."

"Given the elevated physical risks and the absence of an imminent solution, we expect to adjust our price forecasts shortly. The market is still pricing predominantly geopolitical risk, and the cumulative build in geopolitical risk premia since early January is roughly $50/bbl, the highest level ever, reflecting a situation that is totally unprecedented."

"On current information, flows through the Straits have all but ceased, except for Iranian vessels. Estimated flows through the Straits are down by roughly 17 mb/d (so 10% of normal flows are currently occurring), as shippers remain in “wait‑and‑see” mode. Redirection of oil via pipelines and the ports in Yanbu (Saudi Arabia, Red Sea) are around 1mb/d versus a potential of perhaps up to 2.5mb/d more as 10 million barrels were loaded in the first four days of March implying a 2.5mb/d run rate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)