Q+A: Could oil hit $US150 a barrel?
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How could Strait of Hormuz disruptions push oil prices higher?
Welcome to Fear and Greed QA, where we ask and answer questions about business, investing, economics, politics, and more. I'm Sean Aylmer. Crude oil prices are back above US dollars a barrel after Donald Trump rejected Iran's latest proposal to reopen the Strait of Humuz and Iran, refusing to soften its demands. The renewed uncertainty is already hitting bond markets, with investors worried that another surge in energy prices will make inflation that much harder to control. So how much worse could this get? And how long does it take for another oil shock to fully make its way through to Australian households and businesses? Vivek Da is Head of Commodities and Sustainability Research at Commonwealth Bank.
Vivek, welcome back to Fear and Greed. Oh, thank you. So where are we up to, Vivek? If the conflict drags on and Strata for Mus remains closed or at least heavily restricted, where can oil prices go to?
Sure.
How low could oil inventories fall before prices reach $150 a barrel?
So look in terms of where or or what we're dealing with right now, and if we compare where we are now to say when the Iran War started, the functional difference is we're sitting with a lot fewer inventories than than we were before. And so when we get to a position that we are right now, which is that inventory depletion is on the radar again, and we would put this number at around, you know, five to ten weeks. It really does mean that if any major player in the in terms of US or Iran overplays their hand, We could really risk physical shortfalls in this market. And I s and I would say that is why the market is very jittery right now. Because we know that everyone is trying to leverage, you know, what they can in these talks between the US and Iran.
But if we see this prolonged for longer than than markets can handle, you start having to price in these worst outcomes. And so when we talk about what happens if we get to inventory depletion, We would say that that we need to see prices get to levels where emerging Asian economies basically see uncontrolled demand destruction. And by that I mean high prices for oil, which end up reducing demand, particularly for the most vulnerable and poorest Asian economies, like your, like say Sri Lanka, Bangladesh, Thailand, Vietnam, these are the economies that are really exposed. And for that price to to induce that level of uncontrolled demand destruction, we estimate that at about $150 a barrel for Brent.
How likely is Brent crude to reach $150 if US-Iran talks fail?
How likely is it that Brent could get to that level? Maybe that's an unfair question because who knows how the negotiations go. But if we don't get some sort of solution in the next five to ten weeks, is it possible for prices to go to those levels?
Look, I I I'd say that's the tail risk. And and that's the risk the market has to almost look at, but consider is this really what we're going to get to? And and that's what makes this such a complicated you know, way to look at the market is you're almost putting, say in our view, about fifteen percent on that hundred and fifty dollar barrel mark being reached. We think that where we are right now, you know, we have seen Iran leverage nearly everything they have. So, you know, control over the Strait of Homo's. You know, via their proxies, the Houthis, they are showing control over the Babel Mendeb Strait, which is the Red Sea route. And they've also attacked key pipeline infrastructure. And so right now, Iran is probably in the box seat to almost get their demands answered.
And with that, the US is saying, okay, fine, we'll come to the table earlier than we want to, but you know, what kind of concessions are they willing to give? And that's really where the game is is happening. happening right now. And you hear a lot about, you know, the Strait of Homuz and who really controls it, because that's the the real chip when you're talking about do you get a very Iran-friendly deal or do you get a deal which is more friendly to the US? And that's really what we're talking about. And we would put an 85% probability on a deal being reached. But As I said, you know, that means meaningfully lower prices that puts us back into that seventy two hundred dollar barrel range.
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Chapters
8 chapters
1
How could Strait of Hormuz disruptions push oil prices higher?
0:05–1:01
2
How low could oil inventories fall before prices reach $150 a barrel?
1:01–2:33
3
How likely is Brent crude to reach $150 if US-Iran talks fail?
2:33–4:19
4
Can alternative oil supplies and pipelines reduce Australia’s reliance on the Strait of Hormuz?
4:19–6:47
5
How protected is Australia from physical oil and fuel shortages?
6:47–8:05
6
Why is diesel especially vulnerable to supply disruptions and price spikes?
8:05–10:26
7
How could new oil routes and electric vehicles reduce reliance on the Strait of Hormuz?
10:26–12:04
8
Could the oil crisis weaken OPEC+ and lead to structurally lower oil prices?
12:04–13:06
Speakers
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