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(Bloomberg) — Oil prices could rise to $110 per barrel if traffic in the Strait of Hormuz remains disrupted for another month, according to Citigroup.
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Global crude and product inventory losses from the US war on Iran could rise to an estimated 1.3 billion barrels should the vital shipping route remain blocked for another four weeks, the firm said.
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Even if a ceasefire extension is signed this week and shipping through the strait, along with production, gradually resumes through May, total global crude and product inventories are expected to decline by roughly 900 million barrels. That consists of 500 million barrels already lost and another 400 million of anticipated losses stemming from ramp-up delays and conflict-related damages.
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Another two-month disruption of Hormuz, however, could take approximately 1.7 billion barrels offline and push prices to $130 a barrel, according to Citi.
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But even if the conflict ends this week, Citi predicts global crude and fuel inventories will reach their lowest levels in eight years by the end of June. Rebuilding those stockpiles would likely take more than two years, assuming a rapid return to a one million barrels a day surplus market post-conflict, the firm said.
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The bank predicts that a preliminary agreement between Iran and the US will be signed or the ceasefire will be extended this week, and that could turn into a more comprehensive deal. “That said, we remain prepared to pivot toward a more protracted disruption scenario should negotiations falter,” Citigroup analysts led by Max Layton wrote in a note.
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Oil prices are up 5% to trade above $95 a barrel in New York on Monday after US President Donald Trump said that it’s “highly unlikely” he would extend a ceasefire and that the strait would remain blocked until an agreement is finalized. The on-going energy crisis has triggered an unprecedented supply shock, intensifying inflationary pressures and weighing on worldwide economic growth.
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The bank recommends rolling long positions in front-month crude as an effective hedge against upside price risks.
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