[Weekend Money] How Far Could Oil Prices Fall If a Peace Agreement Is Reached?

As expectations for a peace agreement between the United States and Iran rise, hopes are also growing for a decline in oil prices. However, as it will not be easy to resolve supply disruptions quickly, it is expected that any drop in oil prices will happen gradually.

According to Hana Securities, if a peace agreement is reached between the two countries, the price of West Texas Intermediate (WTI) crude oil could fall to around 85 to 90 dollars per barrel. Jeon Kyuyoun, a researcher at Hana Securities, stated, "Currently, oil prices are being affected by a risk premium due to geopolitical risks and upward price pressure resulting from supply shortages." He added, "If the two countries reach a peace agreement, the risk premium will be reduced at once, leading to a decrease in oil prices." However, he also noted, "The increase in oil prices caused by supply disruptions is likely to stabilize only gradually, so a high oil price environment is expected to persist throughout the second half of the year."

The volume of crude oil production disruptions in Middle Eastern oil-producing countries in April is estimated to be around 10.5 million barrels per day, which is larger than anticipated. Due to a lack of storage space, it appears that production disruptions will increase even further in May. Researcher Jeon analyzed, "If navigation through the Strait of Hormuz normalizes, the volume of production disruptions will gradually decrease, but considering the time required for oil fields that have halted operations to resume production, crude oil output in the Middle East is highly likely to increase only gradually in the second half of the year."

Global oil inventories are being depleted at a rapid pace. Even in the United States, where the impact of war on crude oil supply has been limited, the release of strategic petroleum reserves accelerated in May. Researcher Jeon stated, "The global crude oil supply shortage will be at its peak in the second quarter," and predicted, "OECD oil inventories are expected to continue to decrease through September and October of this year. Even after the end of the war, it will be difficult for oil supply to increase immediately, so countries will have to continue using their stored oil inventories for the time being." During the period when OECD oil inventories are decreasing, the high oil price environment is likely to persist. Jeon added, "In the second half of the year, WTI is expected to gradually decline within the range of 70 to 95 dollars per barrel."

There are also projections that the tight supply-demand conditions for crude oil may continue until the end of the year. Choi Yechan, a researcher at SangSangin Securities, said, "Even after the end of the war, supply shortages are expected to continue into the third quarter, and the demand to replenish inventories during the subsequent supply-demand balance phase will prevent oil prices from falling easily." He also analyzed, "On the supply side, considering the time needed to restore damaged oil infrastructure in Gulf oil-producing countries, oil prices could remain about 32 percent higher than appropriate levels until the end of the year." SangSangin Securities forecasted that, assuming the war ends in May and navigation through the Strait of Hormuz resumes in June, the average price of WTI front-month futures will be 90 dollars in the second half of this year.

This content was produced with the assistance of AI translation services.