Oil Prices Surge as Hopes for US-Iran Deal Fizzle

Oil prices are on the rise again due to fading hopes for a US-Iran deal. The Strait of Hormuz, which accounts for 20% of global oil flows, is likely to remain closed, threatening to push prices back to multi-decade records.

Tuomas Malinen, a Finnish economist and professor at the University of Helsinki, warned that America's oil reserves are approaching 'the danger zone.' He estimated that without price manipulation from the US releasing more oil reserves, crude prices would likely be trading around $150 to $200. This could lead to severe demand destruction, causing consumers to pull back on oil products and pushing the US economy into a recession.

Malinen predicted that 'the sudden stop' in oil flows from the SPR would cause the global energy system to go haywire, leading to skyrocketing oil prices, tanking stock markets, and a rapid onset of a recession in the US. HFI Research also laid out two scenarios for how the oil situation could progress, both resulting in extremely elevated oil prices.

Helima Croft, the global head of commodity strategy at RBC Capital Markets, noted that the market is facing additional supply pressures from Ukraine's recent attacks on Russian energy infrastructure. Francisco Blanch, the head of commodities and derivatives at Bank of America, also expects further upside for oil prices if traffic through the Strait of Hormuz doesn't significantly increase.