Iran War Drives Oil Shock

Summary

Amrita Sen analyzes the oil market impact of the Iran conflict, arguing that supply disruptions are severe and underestimated, leading to higher oil prices due to low inventories, elevated shipping costs, and a physical-futures disconnect. She predicts sharp price increases and a prolonged normalization process, with the market in denial about the ramifications.

• Oil prices expected to open sharply higher.
• Physical crude oil trading at a $30-40 premium to futures.
• Supply disruptions have shut in 10-13 million barrels per day.
• Inventory levels are low with only 5-6 days of cover.
• Shipping costs through the Strait of Hormuz have surged.
• Normalization of supply will take months even with a ceasefire.
• Risk of sustained higher oil prices with a floor of $80-100.
• Market is in denial about the severity of the situation.