Brent Crude Price Could Reach $120 as Middle East Supply Interruptions Continue

PVM Oil Associates, a unit of TP ICAP, is warning that Brent crude may reach $120 per barrel as supply interruptions in the Middle East continue to erode market defenses. Analyst John Evans notes that the workarounds that eased earlier disruptions through the Strait of Hormuz are starting to lose their effectiveness.

The ongoing Houthi attacks in the area have forced Saudi Arabia to temporarily close its East-West pipeline, which was a vital alternate route for sending crude to Yanbu on the Red Sea. The fighting has also put shipping through the Bab al-Mandab Strait at risk.

PVM analyst Tamas Varga says that without a diplomatic breakthrough over Hormuz, the downside is limited, and oil stocks will not be refilled anytime soon. Refining constraints are adding to the pressure, with disruptions to Russian refining capacity, elevated utilization rates in the U.S. and India, and restricted refining activity around the Persian Gulf.

Emergency inventories may also offer less protection than earlier disruptions. Evans notes that strategic stock releases were important in cushioning the market earlier in the conflict, but argues that the capacity to repeat releases on a similar scale is increasingly limited.