(May 21): Oil market participants are increasingly pricing crude to be capped near US$100 ($127.89) a barrel over the next year, as demand is forced to slow down to counter millions of barrels of supply losses caused by the US-Iran war.
That’s one of the conclusions from a Bloomberg Intelligence (BI) survey that received 126 responses this month from asset managers and other energy market specialists.
A majority of market participants expect Brent to average US$81 to US$100 a barrel over the next 12 months. Almost two-thirds of respondents see oil carrying a lasting risk premium of US$5 to US$15 a barrel for years to come, with few expecting it to exceed US$20.
“This distribution suggests geopolitical risks are seen as persistent, but not as a fundamental reset of the longer-term price regime,” according to BI analysts including Salih Yilmaz and Will Hares. “Instead, respondents appear to assume that supply and demand will gradually rebalance, anchoring prices within a relatively stable range.”
The survey identified “demand destruction” as the most likely mechanism to offset supply deficits over the next year, followed by rerouted trade flows, Opec+ policy adjustments and releases from strategic reserves. Most respondents expect global supply disruptions to average three million to seven million barrels a day, with few anticipating outages above 10 million.
See also: Goldman says global oil stockpiles falling at record pace
Now in its 12th week, the war in Iran has severely constrained traffic through the Strait of Hormuz, driving up global energy prices and inflation. Flows through the strait are expected to remain restricted, though not to the point of collapse, according to the BI survey. Almost half of respondents expect volumes to average 51% to 75% of the normal 20 million barrels a day over the next 12 months.
Still, headline oil prices have remained relatively subdued despite signs of tightening physical supplies.
The so-called call skew for West Texas Intermediate and Brent, or the premium traders pay for options betting on further price gains, has narrowed to its smallest level since before the conflict began in late February. Hedge funds also cut bullish positions to their lowest levels since that period.
See also: Oil edges up as Trump says US in 'final stages' of reaching Iran deal
The moves point to a market that’s focused less on chasing upside and more on managing volatility. About a quarter of respondents expect an increase in hedging and risk-management activity, compared with 15% who see more opportunistic risk-taking.
US shale is still expected to add barrels, though few believe production growth will be strong enough to meaningfully rebalance the market. Most respondents see moderate gains over the next several years, while nearly a third expect output to remain broadly flat. Only a small minority forecast either a sharp increase or outright decline in production.
Some shale producers are already preparing to modestly increase drilling activity as prices trade near four-year highs, while Washington urges domestic companies to pump more crude. The US Energy Information Administration projects US crude output will climb to a record 14.1 million barrels a day in 2027.
Uploaded by Tham Yek Lee
