Morgan Downey

The Strait of Hormuz closure has exhausted all temporary buffers (SPR releases, floating storage, inventory efficiency gains) and the market is complacent. To balance the 10 million bpd supply loss, oil prices must rise enough to cause demand destruction. If the crisis continues another month, prices will reach $150-$200. Even if a peace deal is reached today, restarting shut-in production and tanker traffic will take months, keeping oil above $100 for a year or two.

US oil and gas producers will have a very good summer because higher oil prices make them highly profitable, and their stocks look cheap today relative to the potential for $150-$200 oil.

At $100 oil, US Permian basin producers are highly profitable and having a great time. They benefit directly from elevated prices and have no ESG headwinds currently. The sector will generate strong cash flows as long as oil stays above $70-$80.