Geopolitical risks dominate market sentiment, with oil prices fluctuating at high levels

As of April 21, Brent crude settled at approximately $95.48 per barrel, up 5.64% for the day, reaching nearly a 7% intraday gain before pulling back. The core driver of this round of gains is the re-pricing of geopolitical risks in the Strait of Hormuz — last Friday, influenced by signals of Iran opening the strait, Brent plunged over 9% to $90.38 per barrel, but as the Iranian military announced the resumption of strait control and the US-Iran ceasefire agreement approaches expiration (at the end of US Eastern Time on April 21), the market re-priced supply disruptions, with oil prices jumping over 7% on Monday.

Before the conflict, Gulf countries exported about 19 million barrels per day of crude oil and condensates, now reduced to around 8 million barrels per day, with Iran’s exports dropping sharply from an average of 1.7 to 2 million barrels daily to nearly zero. Société Générale called this "the largest supply shock in the modern oil market history." Data from the International Energy Agency shows that the Middle East conflict has caused about 10% of global oil supply to shut in, with over 80 energy facilities severely damaged. Executive Director Birol stated that restoring production losses would take approximately two years. The Oxford Economics predicts that even if the strait reopens, throughput in May and June will only recover to about half of pre-conflict levels.

On the macro front, expectations of Federal Reserve rate cuts continue to cool. When Brent prices remain above $90 for more than three months, energy costs will gradually pass through to downstream sectors such as transportation, chemicals, and agriculture, pushing up core inflation. Currently, CME data shows only a 1.5% chance of a rate cut in June. ING pointed out that "physical shortages impact many goods essential for 21st-century life." Several institutions have also raised their forecasts: UBS raised its Brent target price to $100 per barrel by the end of June, SocGen revised its year-end forecast to $85 per barrel, and Citibank warned that if the strait disruption persists for another month, oil prices could rise to $110 per barrel.

In the short term, oil prices will continue to fluctuate sharply with news related to the Strait of Hormuz, as the market swings between "supply disruptions" and "diplomatic easing expectations." The key to the outlook is the situation after the ceasefire expires on April 22. If negotiations break down, Brent could test the $100 level again; if a temporary agreement is reached, prices may quickly retreat, but most institutions believe that $80 will become the new support level.

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