Oil: Supply shock sustains inflation risk – TD Securities

TD Securities strategist Bart Melek highlights that the Strait of Hormuz disruption has removed 9–10 million bbl/d from the market, keeping Brent near $100/bbl and potentially pushing it above $150/bbl. Melek warns that prolonged shortages, elevated energy and input costs, and constrained logistics could keep Oil high for an extended period, reinforcing global inflation and stagflation concerns into the summer.

Hormuz disruption underpins high prices

"With the Strait of Hormuz disruption constraining supply, Brent could still move into the $150+/bbl range, lifting inflation expectations and raising the risk that the Fed tilts toward neutral or even a restrictive bias, which increases carry/ opportunity costs for gold holders."

"With the Strait of Hormuz continuing to be virtually impassable, the massive supply disruption of 9–10 million bbl/d will likely be extended. We judge that if this continues, significant physical shortages will emerge by the summer."

"As such, the global crude benchmark, Brent, may well surge to a new, higher trading range above $150/bbl, up from the current $103/bbl. Sky-high energy, fertilizer, and other critical input prices sourced in the Gulf region may be in the cards for a prolonged period, even if ships start sailing through the Strait soon."

"Given recent rhetoric from Washington and Tehran, various attacks on shipping, and a lack of appetite on the part of Iran to give up its nuclear capabilities, an agreement that allows unfettered flows through the Strait of Hormuz may not materialize in the near term. Conversely, physical availability of crude is getting tighter by the day, as recent optimism that brought WTI down below $100/bbl has not been coupled with increased oil flows."

"Post-war deficits may keep oil elevated in the $100/bbl territory for quite while."

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