Analysts warn of supply risks as oil prices return to pre-war levels
Oil prices have fallen sharply to pre-war levels in recent weeks in response to the fragile ceasefire between the United States and Iran and diplomatic efforts to bring the conflict to a permanent conclusion.
But commodity strategists warned on Monday that prices may reflect an overly optimistic stance by markets that are underestimating the extent of ongoing supply-side challenges.
Analysts suggest that shipping traffic in the Strait of Hormuz is unlikely to quickly return to pre-war levels, even if there is a revival in activity following the US-Iran ceasefire agreement, as Tehran seeks to put pressure on the critical chokepoint.
Strait of Hormuz traffic normalizes
Nikos Petrakakos, chief investment officer at Tufton Investment Management, said many shipping companies were cautious about returning their ships through the key energy gateway, citing uncertainty over the peace framework, ongoing concerns about naval mines and rising war risk insurance premiums.
“While there may be some more movement, overall we are nowhere near getting back to where we were,” Petrakakos told CNBC’s “Europe Early Edition” on Monday.
International comparison Brent crude futures were trading at $72.45 per barrel as of 8:42 a.m. ET on Monday; this figure reached a wartime high of over $188 per barrel in late April.
Amrita Sen, founder and director of research at Energy Aspects, said markets may be underestimating how far shipping conditions remain from pre-war norms.
While the stranded ships are currently passing through the Bosphorus, he said the biggest challenge is convincing shippers to send the ships back. “Shipping costs are incredibly high right now, and you still can’t find enough shippers willing to get back out there,” Sen told CNBC’s “Squawk Box.”
Sanctions pose the risk of a ‘slippery slope’
Strategists say a formal toll system for ships in the Strait of Hormuz is unlikely to emerge, but they have warned that Tehran could continue to press for some degree of control over shipping through the waterway.
Petrakakos said arrangements regarding possible tolls or coordination with Iran remain largely temporary, with most shipping companies avoiding direct interaction due to sanctions risk.
Proper coordination with Iran “is not happening,” he said, describing the issue as a “slippery slope” for companies that could expose themselves to penalties later. He added that some operators are taking a more non-transparent approach, including turning off transponders to hide ship locations.
“Before this war, Iran really had no authority or say in what was going through the Strait of Hormuz,” Petrakakos said. he said. “This is a changing status quo going forward. I don’t see Iran going back to where it was before.”
Brent crude oil.
He said Iran will continue to try to “pretend it’s a canal, like the Suez Canal or the Panama Canal… to provide some sort of coordination and have some control over the way ships pass.”
However, Sen stated that a formal toll mechanism would be unacceptable to Gulf Cooperation Council countries and Western companies, stating that the issue of fees depends more on Iran’s need to repatriate funds for its post-war reconstruction.
“Iran is aggressively using its influence to make it clear that they are the ones who will control shipping, especially in the southern strip,” Sen said. “Western companies will definitely not be allowed to pay this fee.”
While ships stranded in or near the Bosphorus may be able to exit gradually, Petrakakos said insurers are still far from comfortable enough to provide coverage for ships entering the Bosphorus to pick up cargo.
“I think insurance will only come into effect within months,” he said, highlighting the problem with the Houthi attacks in the Red Sea, adding that it takes time for insurers to get comfortable before reducing premiums.
“They will really need to see that this is not just an agreement on paper,” he added. “They will need to see this implemented and held together for a while before we see traffic fully normalize and premiums come down.”
Recreating inventories
Petrakakos also cautioned against the assumption that oil and gas ships will automatically be given priority when transiting the Bosphorus. Other cargo, including high-value finished goods carried on container ships, may also be considered strategically or commercially important, he said.
He added that dry cargo ships, which typically carry lower-value goods, may have a different risk calculus because insurance costs may represent a smaller portion of the overall cargo value.
Aldo Spanjer, head of commodity strategy at BNP Paribas Markets 360, said Iran’s influence in the Strait of Hormuz remains an important issue for oil markets.
“My base case scenario is that Iran may eventually give up control of Hormuz in terms of the formal control and toll system,” Spanjer told CNBC’s “Squawk Box Europe” on Monday. “The wage system is about revenue. You can do it a different way.”
West Texas Central.
Spanjer said the focus in oil markets has shifted from the immediate disruption of supply to the question of how quickly depleted stocks can be rebuilt.
“The story coming into the market is, ‘How are we going to fill all the stock we’ve issued?'” he said. “Every importer in the world will build higher inventories.”
Spanjer said his year-end target remains at $80, arguing that additional supply could be absorbed by buyers looking to rebuild their inventories.
“If this MoU goes ahead and more flows into the market, I think we will recover a little bit because there is enough absorption capacity for the barrels,” he said. “That means a relatively limited market for me.”
Looking forward, Spanjer said he sees oil trading in the $75 to $85 range in 2027. Once inventories are rebuilt, upside risks are likely to be more limited and the market could return to a more lagging structure where spot prices trade below prices for contracts maturing in the future, he said.
“I can’t be above $85 because who is going to fill the inventory above $85?” he said. “I really don’t want to be below $75 because there’s still a lot of opportunistic buying in the market.”
