Piper Sandler says Strait of Hormuz to remain closed for months and oil to hit new highs
Piper Sandler does not believe rumors that a deal with Iran is imminent and is telling clients that the Strait of Hormuz will remain largely closed and oil will reach new highs.
“We think the Strait of Hormuz has remained largely closed for months, meaning the shortage has become even more urgent and oil will reach new highs this summer,” according to a recently published note from the investment bank’s energy and macro teams.
West Texas Intermediate Futures It has been declining since Friday but rebounded somewhat on Tuesday amid mixed messages over the long weekend regarding a possible Iran deal. The US military said Iran had launched “self-defense strikes” in southern Iran that included targeting missile launch sites and ships planting mines around the Strait of Hormuz. The news comes after President Donald Trump said on Saturday that a deal with Iran was “substantially negotiated” and that details would be announced shortly. Meanwhile, Iran’s foreign ministry said transportation through the vital shipping channel “will incur costs.”
Piper Sandler said he had little confidence that commercial traffic on the Bosphorus would return to even 50 percent of pre-crisis levels next week or next month.
The memo said the United States was “reluctant to continue the fight” because the extent of Iran’s retaliation could have broader impacts on its neighbors and further disrupt global supply chains.
The bank also argued that Iranian leaders are not willing to make any compromise because they believe they have leverage, reinforcing concerns that the closure of the Bosphorus could take months.
WTI crude oil, YTD
Various economies in the Middle East, Asia and Europe rely heavily on shipments via the Bosphorus, which is particularly important for oil and LNG exports from the Middle East to Asia. The narrow passage, which once carried nearly a fifth of the world’s seaborne oil, has seen historic declines; tracking data shows that ship traffic has fallen sharply to near zero since the war escalated.
WTI crude futures approached $120 a barrel at the start of the conflict but were last trading around $94 a barrel. If Piper Sandler’s call for a new peak comes true, it would bring a major jolt to the global economy and undermine the stock market’s comeback as oil trades at wartime highs.
