Oil & Energy
Update: Analysts Greet Ceasefire News With Caution, Express Doubts Over Hormuz Normalization
(Adds comments from oil economist Mamdouh Salameh in ninth to 12th paragraphs, Janiv Shah from Rystad Energy in the 22nd to 24th paragraphs, Scott Wren from WFII in the 25th paragraph, and Phil Flynn from Price Futures Group in the 26th paragraph.)While markets awoke to welcome news of a US ceasefire with Iran on Tuesday, prompting a rapid plunge in oil and gas futures, analysts voiced doubt over any hoped-for stampede of vessels through the Strait of Hormuz to replenish tight global supplies.While the ceasefire defused the most tense moment in the war so far, after US President Donald Trump warned an entire civilization could die within hours if no deal was reached, the foes return to diplomacy from here with two radically different sets of demands.With prospects for reconciling their positions still dim, some analysts have questioned whether Wednesday's market reaction may be overdone, skeptical that ships can proceed as before back and forth across the Strait of Hormuz."The relief rally in oil is understandable but should be treated with caution in our view. The ceasefire effectively halts imminent large-scale strikes and creates space for negotiations, but it does not resolve the underlying conflict or infrastructure damage," said Suvro Sarkar, Head of Energy Research at DBS."Critically, even with the Hormuz corridor technically reopening, restoration will not be instant; trust in safe passage through Hormuz will remain fragile and Middle East oil production shut-ins will unlikely return to pre-conflict levels until late 2026," he said.Reuters reported that senior executives at shipping firms Maersk and Hapag-Lloyd both expressed similar sentiments on Wednesday, that they will proceed with caution until trust is established.Sarkar said the market will likely price in "heightened geopolitical risk premiums rather than a return to pre-war stability.""Oil and fuel prices will likely remain elevated until a permanent solution is reached to the crisis," he said.International oil economist Mamdouh G. Salameh said Brent crude futures could fall to $90 a barrel for the duration of the ceasefire. Should it end with no deal, however, he expected Brent could rebound to $120 or higher."The ceasefire will be very fragile particularly that the two sides don't trust each other. Prices may maintain a low profile until the end of the ceasefire and then head upward very quickly," he said."The volumes of oil and Qatari LNG that will pass through the Strait will be far below pre-war levels until repairs taking at least six months are done to their oil and gas production facilities that were damaged during the war," he said."Instead of 20.0 [mmbbl/d] of Gulf oil, an estimated 10.0 [mmbbl/d] could pass and the same applies to Qatari LNG."Thousands of seafarers have been stuck aboard hundreds of ships unable to leave the Persian Gulf since the start of the conflict on Feb. 28, with many low on supplies.Asian importers, the main buyers of Middle Eastern oil and gas, have borne the brunt of the sudden limitations on supply, shortening work weeks and taking other 'demand destruction' measures, while some European governments have made various cuts on energy taxation at retail level.Analysts had generally expected the shortages to become more acute the longer the conflict endures. The market's immediate sentiment is now likely to revolve around the pace of resumed traffic through the Hormuz Strait.Neil Crosby, head of research at Sparta Commodities, said some statements he had seen suggest there may be no significant rise in Hormuz traffic at all, potentially just "10 to 15 vessels to cross per day as negotiations take place."Meanwhile Iran's Foreign Minister Seyed Abbas Araghchi said that movement of ships must now be coordinated with Iran, raising doubts about how willing it will prove to flex on its main source of negotiating leverage in the conflict so far."For a period of two weeks, safe passage through the Strait of Hormuz will be possible via coordination with Iran's Armed Forces and with due consideration of technical limitations," he said on Twitter following the agreement of the ceasefire.Beyond the immediate issue of the strait, markets have been fundamentally altered by the widespread damage done to refineries and logistical facilities with lead times in some cases expected to run into several years, analysts have estimated.In the aviation sector, Willie Walsh, head of the International Air Transport Association, or IATA, said on Wednesday that it would take months for jet fuel supplies to normalize even with a reopened Strait of Hormuz in light of that disruption to refineries, Reuters reported.Walsh said that refineries in India and Nigeria were two countries with potential capacity to increase refined product supply and he expressed hope China and South Korea would also export more once crude flows stabilize."If it (Hormuz) were to reopen and remain open, I think it will still take a period of months to get back to where supply needs to be given the disruption to the refining capacity in the Middle East," Walsh said.Janiv Shah, vice president of commodity markets, oil, at Rystad Energy, said the ceasefire announcement has "shifted market rationale, allowing futures to reset quickly," but that this does not imply an immediate return to pre-conflict conditions.He said crude "refiners should use this window to resume more opportunistic buying," but warned that delaying purchases could worsen product tightness even as tensions ease."What is being observed, both in reporting and in physical premiums, is not a full reopening of the Strait of Hormuz but rather a formalization of existing conditions, where passage remains contingent on coordination with Iran's armed forces and subject to technical constraints," he said.The resumption of tanker traffic is likely to push down fuel prices, according to Scott Wren, senior global market strategist at the Wells Fargo Investment Institute. "We continue to see the Iran war being of limited duration and the price of fuel falling back as the Strait of Hormuz tanker traffic builds back toward normal over time," Wren said.According to Price Futures Group analyst Phil Flynn, gasoline rates at the pump could come down in a week or two if crude oil holds on to its sharp declines seen in the aftermath of the ceasefire announcement. "It's [the situation] still fragile, but it looks like we're gonna have to take it a day at a time," Flynn said.