Oil prices have plummeted to near pre-war levels in recent weeks following a fragile ceasefire between the United States and Iran and diplomatic efforts to permanently end the conflict.
But commodity strategists warned on Monday that prices may reflect overly optimistic attitudes in markets that underestimate the scale of persistent challenges on the supply side.
Analysts say shipping traffic through the Strait of Hormuz is unlikely to return to pre-war levels anytime soon, even if activity picks up after the US-Iran ceasefire agreement, as Tehran seeks to exert influence at key choke points.
Normalization of traffic in the Strait of Hormuz
Nikos Petrakakos, managing director of investments at Tufton Investment Management, said many shipping companies remain wary of sending ships back through key energy chokepoints due to uncertainty around the peace framework, deep-rooted concerns about sea mines and rising war risk insurance premiums.
“Although further developments are occurring, generally speaking we are far from getting back to where we were,” Petrakakos told CNBC’s “Europe Early Edition” on Monday.
Brent crude oil futures, the international benchmark, were trading at $72.45 per barrel as of 8:42 a.m. ET Monday, up from a wartime high of more than $188 per barrel in late April.
Amrita Sen, founder and head of research at Energy Aspects, said the market may be underestimating how far shipping conditions have fallen from pre-war levels.
The trapped vessel is now transiting the strait, but the bigger challenge is convincing shippers to send it back, Sen said. “Transportation costs are incredibly high right now, and we still haven’t been able to find enough shippers willing to return to the Strait,” Sen told CNBC’s “Squawk Box.”
Sanctions risk becoming a ‘slippery slope’
Strategists say a formal toll system for ships in the Strait of Hormuz is unlikely, but warn that the Iranian government may continue to seek some degree of regulation of ships passing through the Strait.
Petrakakos said any arrangements regarding potential tolls or coordination with Iran remain ad hoc, with most shipping companies avoiding direct involvement due to sanctions risks.
He said there was “no progress” in properly coordinating with Iran and described the issue as a “slippery slope” for companies that could later face penalties. He added that some carriers appear to be taking a more opaque approach, such as switching off transponders to obscure the vessel’s location.
“Before this war, Iran had no real power or voice over the area that passes through the Strait of Hormuz,” Petrakakos said. “It’s the current situation and it’s going to change. I don’t think Iran will go back to the way it was before.”
Brent crude oil.
He said Iran would continue to push for “certain adjustments” to make it look like some kind of canal, like the Suez or Panama Canal, and try to exercise some control over how ships pass through it.
But Sen said the official toll system was not acceptable to Gulf Cooperation Council countries and Western companies, noting that the toll issue was more closely related to the need to repatriate funds to Iran for post-war reconstruction.
“Iran is actively using its influence to assert that it controls shipping, especially through the southern sea lanes,” Sen said. “Western companies will not be allowed to pay that fee at all.”
Petrakakos said ships stranded in or near the strait may gradually move out, but insurance companies are still far from being able to provide sufficient coverage to ships entering the strait to pick up cargo.
“I think it will be a few months before insurance really starts to take off,” he said, adding that it will take time for insurance companies to feel comfortable enough to lower premiums, highlighting the issue of Houthi attacks in the Red Sea.
“They’re going to really need to understand that this is not just an agreement on paper,” he added. “Until we see a full normalization of traffic and a reduction in insurance premiums, they will need to make sure this is implemented and indeed continues for some time.”
Rebuild inventory
Mr Petrakakos also warned against thinking that oil and gas vessels automatically have priority when transiting the strait. Other cargo may also be considered strategically or commercially important, such as high-value finished goods carried on container ships, he said.
Dry bulkers, which typically carry lower-value goods, may have a different risk calculation because insurance costs may be a smaller proportion of the total cargo value, he added.
Aldo Sparger, head of commodity strategy at BNP Paribas Markets 360, said Iran’s influence in the Strait of Hormuz remains a key issue for oil markets.
“My basic scenario is that eventually Iran can relinquish control of Hormuz, in the sense of formal control, in the sense of a fee structure,” Sparger told CNBC’s “Squawk Box Europe” on Monday. “The fee system is about revenue. There are other ways to do it.”
West Texas Intermediate.
Spager said the focus for oil markets has shifted from immediate supply disruptions to how quickly depleted stocks can be rebuilt.
“What’s going on in the market is, ‘How do we backfill all the stock that we’ve sold?'” he said. “All importers around the world will be building higher inventories.”
Spanger kept his year-end target at $80, arguing that additional supply could be absorbed by buyers looking to rebuild inventories.
“If this memorandum is maintained and there is more inflow into the market, I think we will see a bit of a recovery because there is plenty of barrel absorption capacity,” he said. “That means to me the market is relatively range-bound.”
Looking further ahead, Spanger said he expects oil to trade 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 backward structure where spot prices trade below expiring contract prices in the future, he said.
“You can’t go above $85. Who’s going to fill a stock above $85?” he said. “There is still a lot of opportunistic buying in the market, so we don’t really want to see it go below $75.”
