McNally: Oil Disruption From Hormuz Could Last Weeks
Summary
- The Hormuz disruption is expected to last for many weeks, with a 30-day scenario now considered the base case.
- The market is losing 15 to 20 million barrels of oil per day, an amount too large to be offset by the DOE's 400 million barrel SPR release or pipeline redirects.
- Oil prices are projected to march into the triple digits, potentially reaching the mid-$100 range until demand destruction slows economic growth.
- Gasoline prices are expected to surpass $4 a gallon and could exceed the 2022 all-time highs of $5.
- Domestic oil producers are remaining cautious and are unlikely to ramp up drilling activity or hire new rigs, fearing a price crash following the current spike.
Trade Ideas
"oil prices, I'm afraid, are gonna continue marching in the triple digit range... we can go well into the mid mid $100 range and beyond if if necessary to slow economic growth." The Strait of Hormuz disruption removes 15-20 million barrels per day from the global market. Because this artery is too critical, alternative measures like SPR releases and pipeline redirects are insufficient. The sheer math of the supply shock guarantees crude prices must rise significantly to force demand destruction. LONG USO to capture the direct upside of crude oil prices marching toward $150. A sudden ceasefire between the US and Iran, or an unexpectedly rapid reopening of the Strait of Hormuz, would cause a sharp collapse in oil prices.
"prices will march until they enforce the iron law of economics... And the world economy can't grow without 20% of its energy... we can go well into the mid mid $100 range and beyond if if necessary to slow economic growth." With national average gasoline prices heading toward $4 and potentially breaking 2022 record highs of $5, consumers will face a massive energy tax. This forced expenditure on fuel will directly cannibalize discretionary spending, severely impacting retail, travel, and leisure sectors. SHORT XLY as consumer discretionary earnings will be crushed by demand destruction and shifting wallet share toward basic energy needs. Government intervention (e.g., gas tax holidays, stimulus checks) could artificially prop up consumer spending, or the disruption could end before the economic slowdown materializes.
"I think domestic producers are cautious... The last thing they wanna do is hire an expensive rig and workers and pull them out this summer and then find that we've had a crash after a spike." Typically, triple-digit oil prices trigger a massive increase in capital expenditure and drilling activity, which directly benefits oilfield service companies and rig operators. However, because E&P companies have learned from past boom-bust cycles, they will refuse to increase drilling activity, starving the service sector of expected revenue growth despite high commodity prices. AVOID oilfield services and drillers, as they will not experience the fundamental business boom usually associated with $100+ oil. If the disruption lasts longer than expected and oil prices stabilize at high levels for multiple quarters, producers may eventually capitulate and increase drilling budgets.
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This Bloomberg Markets video, published March 13, 2026, features Bob McNally discussing USO, XLY, OIH, HAL, SLB. 3 trade ideas extracted by AI with direction and confidence scoring.