"Just When You Thought 'Time to Travel Abroad'... Shocking News: Even with Hormuz Reopened, High Oil Prices Expected Next Year [Weekend Money]"

International Oil Prices Drop to the $70 Range on Strait of Hormuz Normalization
Return to Early-Year Levels Limited by Bottlenecks and Seasonality
Oil Price Uptrend Expected to Resume Around Q4

With the signing of a memorandum of understanding (MOU) to end hostilities between the United States and Iran, it is expected that navigation through the Strait of Hormuz, which had been blocked by the war, will return to normal. As expectations for the normalization of the Strait of Hormuz rise, international oil prices have fallen back to the 70-dollar range for the first time in three months. However, there are projections that a return to low oil prices of around 50 dollars per barrel, as seen at the beginning of the year, will not be easy.

According to Daishin Securities on June 20, bottlenecks and seasonality are expected to act as factors delaying the normalization of oil exports. There are as many as 2,000 vessels stranded in the Persian Gulf, and if ships headed in the opposite direction from the Gulf of Aden to the Strait of Hormuz also attempt to enter, delays in navigation due to bottlenecks are unavoidable. Choi Jin-young, a researcher at Daishin Securities, analyzed, "Even if ships manage to leave the strait, if a large number of vessels that have escaped and those that have been operating on regular shipping cycles arrive at their destination ports at the same time, unloading delays may occur."

Seasonality is also expected to be a factor delaying export normalization. Researcher Choi noted, "From April to September, which is the cooling season for oil-producing countries in the Middle East, more than 40% of their electricity comes from oil, so they have controlled crude oil exports during this period to stabilize domestic supply and demand," adding, "While this is a special situation, prioritizing their own citizens means that export normalization cannot proceed rapidly."

The outlook is that the upward trend in oil prices will remain unchanged until next year. Researcher Choi explained, "Currently, 30% of oil wells near the Persian Gulf are shut down, and if wells are closed artificially, the reduced pressure can damage underground reservoirs, and water from the strata can enter the production wells, changing the flow of crude oil. As the proportion of water mixed with crude oil increases, and if this intensifies, a phenomenon called 'water coning' may occur, where oil becomes permanently trapped in rock fractures. This is the basis for the expectation that productivity issues at oil wells will become more prominent toward the end of this year."

There is also a lack of new supply expected next year. Researcher Choi said, "Capital expenditures (CAPEX) by energy producers typically precede new supply by seven years. These companies have postponed investments due to carbon neutrality populism and the threat from electric vehicles," adding, "Given this, high oil prices are possible next year. Especially since energy prices lag behind gold prices, a proxy for liquidity, by about 20 months, the upward trend for next year remains valid."

Reflecting these factors, Daishin Securities maintained its 'overweight' recommendation for the energy sector. Researcher Choi explained, "The slow normalization of the Strait of Hormuz, the release of pent-up demand, the expected tightness of future supply, and liquidity that will be reflected in prices with a time lag all point to now being a buying opportunity at low prices," adding, "Oil prices are expected to resume their rebound around the fourth quarter, which is why we maintain an optimistic outlook through the end of next year even amid volatility."

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