Brent crude prices may soar to $120 per barrel if conflicts in the Middle East continue for over three weeks. JPMorgan's strategists indicate that prolonged disruptions could exhaust Gulf storage, resulting in production cutbacks and tighter global supply.
The analysis led by Natasha Kaneva highlights several factors affecting oil prices, including the extent of supply losses, the ability to mobilize replacement barrels and strategic reserves, and potential security threats along critical shipping routes such as the Strait of Hormuz.
Although the Strait has not officially closed, logistical operations have slowed due to rising insurance costs and escalating security concerns. Gulf producers, including countries like Saudi Arabia, Iraq, and Iran, maintain approximately 343 million barrels in onshore storage. This capacity could sustain output for around 22 days if exports are hindered. If production disruptions extend beyond three weeks, it's likely that these producers will have to reduce output, pushing Brent prices into the $100 to $120 range.
Recent military actions involving the US and Israel have further heightened tensions in the Middle East, which has led the oil market to respond vigorously. Oil prices jumped on Monday, with Brent crude climbing over $80 before settling around $77. Energy shares, particularly those of companies like Exxon and Chevron, saw upward movement, as higher oil prices typically enhance profitability for these firms. Defense contractors such as Lockheed Martin and Northrop Grumman also benefited from the inflation in energy prices.