Oil prices are approaching a critical point. What will happen in mid-April?

Original title: (WCTW) The Oil Market Breaking Point
Original author: HFI Research
Compiled by: Peggy, BlockBeats

Original author: Lydong BlockBeats

Original source:

Reprint: Mars Finance

Editor’s note: This article argues that what truly drives oil prices isn’t just whether the conflict has ended, but when it crosses the “critical point.”

In the Iranian conflict, which has been ongoing for nearly four weeks, the oil market is experiencing a classic “time pricing” dynamic. The release of strategic reserves delays the impact, but it cannot eliminate the supply gap; disruptions to tanker transport and slower capacity restoration cause inventory pressure to keep building into the future. Once it passes the key mid-April milestone, the price mechanism will shift from “buffered volatility” to “gap-driven repricing.”

What’s even more noteworthy is that the game structure itself is changing. The conflict is no longer following a “escalate to downgrade” path; instead, it is turning into a test of the market’s resilience at critical points. Whoever can last until supply-demand imbalance is priced by the market will hold the upper hand in negotiations. This means that even if the conflict ends in the short term, oil prices will be hard-pressed to return to the original range. The current supply losses are reshaping the global oil balance for the coming period.

Below is the original text:

In this article, I will break down several possible scenarios that may arise right now. With the Iranian conflict already lasting nearly four weeks, how will this situation affect the oil market?

On March 9, we published a public article, “My latest assessment of the oil and gas market under the Iranian conflict,” in which we wrote:

Below is the impact on oil prices under different scenarios (“lost barrels” already includes the time required to restore production capacity):

Scenario 1: Tanker transport resumes the next day

→ Brent’s full-year average price will fall within the range of the low end of the 70s to the high end of the 70s to the low end of the 80s (about 210 million barrels lost)

Scenario 2: Tanker transport resumes before March 15

→ Brent’s full-year average price will be in the mid-to-high 80s (about 290 million barrels lost)

Scenario 3: Tanker transport resumes before March 22

→ Brent’s full-year average price will be in the low 90s (about 370 million barrels lost)

Scenario 4: Tanker transport resumes before March 29

→ Brent’s full-year average price will be in the mid-to-high 90s (about 450 million barrels lost)

If tanker transport still cannot return to normal by March 29, the situation facing the oil market is even one that few are willing to imagine. The only way out would be demand being forced to contract, and prices being driven to extreme levels.

Shortly after the report was released, the International Energy Agency (IEA) announced a coordinated release of a total of 400 million barrels of global strategic petroleum reserves (SPR). This will, to some extent, ease the shock caused by the supply losses. But as we pointed out in a subsequent article, “IEA coordinated SPR release—delivering the biggest gift to the bulls”:

From a trading perspective, until this layer of “buffer cushion” is exhausted, traders won’t be in a hurry to push oil prices higher. The concentrated release of SPR can indeed ease near-term supply anxiety, but this is only a temporary fix. The market will remain tense: as long as tanker transport is not fully back to normal for a day, oil prices will gradually move upward.

On the other hand, if conditions de-escalate quickly—for example, an immediate ceasefire or an agreement—oil prices will fall rapidly. For instance, if a peace agreement is reached by March 15, global inventories would increase net by 110 million barrels (400 million barrels released minus 290 million barrels lost).

This could push Brent prices back down into the mid-range around $70.

Conversely, if there is no peace agreement and the supply disruption lasts through the end of March, global inventories will decline net by 50 million barrels, and with each additional week, the gap will widen by about 80 million barrels.

Therefore, the role of SPR is only to “buy time” and does not solve the core problem. Tanker transport must return to normal. However, it does prevent catastrophic price spikes in the short term, thereby preventing demand from collapsing on a large scale.

As time has progressed to now, we have entered the “March 29 scenario” set at the beginning of the month. Next, we will judge the direction of the oil market based on the latest facts.

Facts

The total production shutdown from Saudi Arabia, the UAE, Kuwait, Iraq, and Bahrain has reached 10.98 million barrels per day:

Iraq: -3.6 million barrels/day

Kuwait: -2.35 million barrels/day

UAE: -1.8 million barrels/day

Saudi Arabia: -3.05 million barrels/day

Bahrain: -0.18 million barrels/day

Saudi Arabia has fully utilized its capacity for east-west crude oil pipelines; currently, exports through the Red Sea are about 4 million barrels per day. The UAE is also rerouting via the Abu Dhabi pipeline (Habshan-Fujairah), and its capacity of roughly 1.8 million barrels per day has likewise hit the limit. Tanker transport through the Strait of Hormuz remains completely disrupted. In fact, even if the war ends tomorrow, it would still take months to restore production and rebuild normal transport.

Scenario simulation

I will lay out three possible paths:

1. The war ends within this week, and transport resumes by the end of this week

2. The war ends in mid-April

3. The war ends by the end of April

It needs to be noted that the release of 400 million barrels of SPR has given the market more time than our initial assessment on March 9. The following oil price scenarios have taken this change into account.

Scenario 1: Ends this week

Impact on global inventories: -50 million barrels (includes SPR)

Impact on Brent: short-term pullback to the low end of $80, with the full-year average in the mid-to-high $80s

Scenario 2: Ends in mid-April

Impact on global inventories: -210 million barrels

Impact on Brent: short-term pullback to the low end of $90, with the full-year average in the mid-to-high $90s

Scenario 3: Ends at the end of April

Impact on global inventories: -370 million barrels

Impact on Brent: short-term spike into the $110 range, with the full-year average at $110–$120

Key turning point: mid-April

For the oil market, there is a clear “critical point.” Currently, the market broadly expects that the conflict will end before mid-April, and this expectation is crucial for oil price pricing.

Oil prices are the product of “marginal pricing.” As long as the market believes supply is still “just barely enough,” there will be no panic. That is exactly the current state of the oil market—there is a lack of panic.

The Trump administration’s policy signals, the easing of sanctions on Iranian and Russian crude, and the release of SPR have all suppressed oil prices.

But once it crosses this critical point, these factors will stop working.

At present, the evaporation effect of global “in-transit crude” has not yet truly transmitted to onshore inventories. But our view is that by mid-April, this impact will become fully visible.

If the conflict is still not resolved before mid-April, the International Energy Agency (IEA) would have to coordinate another release of about 400 million barrels of strategic petroleum reserves (SPR). Otherwise, oil prices would surge into a “demand-destruction” range (above $200).

Long-term impact

In its latest weekly report, Energy Aspect estimates that the total supply loss accumulated by the market is about 930 million barrels. Of this, the cumulative production loss from May to December is about 340 million barrels.

This assessment is clearly more aggressive than ours. In our inventory sensitivity analysis, we did not sufficiently account for the reality that countries such as Iraq and Kuwait may need 3 to 4 months to restore production capacity. This means our earlier estimates may have been too conservative.

For Goldman Sachs, the conclusion is straightforward: the longer the conflict lasts, the longer oil prices remain high.

Under the scenarios above, Goldman Sachs also provided an assumption: if the conflict lasts another 10 weeks, what state would the market be in. Its judgment is basically consistent with the scenario analysis we laid out earlier.

In essence, there is a “critical point” in the oil market. Once it crosses that line, there is no going back.

Readers need to set expectations: future oil prices will show a structural upward lift. Even if the war ends within this week, the supply losses that have already occurred will still have a real impact on the future global oil supply-demand balance.

How long will it last?

Up to now, I have avoided making a judgment about when this conflict will end. On the one hand, I don’t want to “stand a flag”; on the other hand, I truly can’t predict it.

But one point can be made clearly: this time is different from previous conflicts. In the past, the common pattern was “escalate to de-escalate,” and now there are hardly any signs of such a strategy.

Retaliatory strikes occur without any warning; Iran’s strike scope also appears to no longer be limited to Israel, but has expanded to Gulf countries. It is this way of reacting that made me realize from the start—this time is different.

With the conflict now in its nearly four-week stretch, I’m increasingly worried that as long as no agreement can be reached after prolonged delays, the probability of reaching one will drop significantly with each additional day. As we analyzed in the article “Time Is Running Out,” Iran has a very clear logic for how the oil market operates. It only needs to wait until the market touches that “critical point,” and then it can seek the biggest concessions from the United States in negotiations. From a tactical perspective, reaching an agreement at this time offers no advantage to it. The play of the Strait of Hormuz has already been played, and it will be hard to reuse it again in the future.

For the Gulf countries, if the current Iranian regime is not overthrown, this “pressure-at-the-throat” situation is likely to keep recurring. Even if some kind of “toll” mechanism is established, this uncertainty is still difficult to accept.

Therefore, logically speaking, control does not lie with the United States; it lies with Iran. In this case, Iran has more incentive to push the situation toward the oil market’s “critical point” to test America’s tolerance. What it needs to do is simply “hold on” for another three weeks, until the market begins to show cracks.

However, it’s important to emphasize that I’m not a geopolitics expert, and I don’t have full confidence in judgments like this. All I can provide is a judgment about the current situation based on fundamental analysis.