Hormuz Bottleneck: Oil Price Peak May Be Lower Than Expected

For months, experts have debated whether the Brent oil price would reach $150 or $200 per barrel due to the Strait of Hormuz bottleneck. However, a closer look at the data suggests that demand flexibility may be higher than previously thought.

The author has been pushing back against this idea for six months, citing two key reasons: first, the elasticity of oil demand, and second, global refining margins. The midpoint of academic estimates puts the peak oil price due to Strait of Hormuz disruption at $125 per barrel.

The price of distillate fuel oil, often sold as diesel, is influenced by crude oil prices, retail margins, distribution costs, taxes, and crack spreads (an indicator of refining margins). Tight global supplies of distillate fuel oil and elevated crude oil prices have driven prices higher in recent months.