Piper Sandler is not buying talk that a deal with Iran is near, telling clients that the Strait of Hormuz will remain mostly closed and oil will hit new highs.
“The Strait of Hormuz will still remain largely closed for many months, meaning supply shortages will become more urgent and oil prices will reach new highs this summer,” said a recent note from the investment bank’s energy macro team.
West Texas Intermediate Futures It had fallen since Friday, but rebounded slightly on Tuesday amid mixed messages over the weekend regarding a possible Iran deal. The US military said it carried out “self-defense strikes” in southern Iran, including targeting Iranian missile launch sites and ships that planted mines around the Strait of Hormuz. The news came after President Donald Trump said on Saturday that the deal with Iran was “almost negotiated” and details would be announced soon. Meanwhile, Iran’s Foreign Ministry said navigating the vital sea route was “costly.”
Piper Sandler said he had little confidence that commercial traffic through the Strait would return to even 50% of pre-crisis levels next week or next month.
The document said the United States was “reluctant to press for combat” because the scale of Iran’s retaliation could have far-reaching implications for neighboring countries and further disrupt global supply chains.
The bank also asserted that Iranian leaders are unwilling to accept any compromise because they believe they have influence, raising concerns that the strait blockade could last for months.
WTI crude oil year-to-date
Various economies in the Middle East, Asia and Europe rely heavily on shipping through the strait, which is particularly important for oil and LNG exports from the Middle East to Asia. The narrow waterway, which once carried about a fifth of the world’s offshore oil, has experienced a historic decline, with tracking data showing shipping traffic has plummeted to almost zero since the war escalated.
WTI crude oil futures were close to $120 per barrel at the start of the dispute, but have recently been trading around $94 per barrel. If Piper Sandler’s demand for new highs comes true, it would send a huge shockwave through the global economy and undermine the stock market recovery that occurred as oil prices dipped below wartime highs.
