How high could the oil price go? | The Economist

TL;DR

Oil prices could reach $167–$460 per barrel as a 14-million-barrel-per-day supply shock depletes global stocks at record speed.

Key Points

• 1.The supply shock requires extreme price increases to balance markets. Losing ~14 million barrels/day (13% of global supply) implies prices of $167–$460/barrel are needed to destroy enough demand, per academic rules of thumb.
• 2.Oil traders have been living in 'La La Land' assuming a quick resolution. Markets priced in a fast peace deal reopening the Strait, but that view is collapsing — the deficit is 4–5x larger than the Russia-Ukraine shock that pushed prices to ~$130/barrel.
• 3.Emergency buffers are nearly exhausted. Gulf nations pre-loaded tankers before the war; Russian and Iranian crude stockpiles at sea have been drawn down rapidly, with jet fuel and diesel now near minimum levels needed to sustain maritime trade.
• 4.Alternative production cannot compensate for the lost supply. Incremental output from the US and sanctions relief on Russia is 'chalk and cheese' compared to the trapped Middle Eastern production, leaving demand destruction and dwindling commercial stocks as the only two remaining shock absorbers.