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
Translation: Peggy, BlockBeats

Editor’s note: This article argues that what truly drives oil prices is not only whether the conflict ends, but “when it crosses the critical point.”

In the Iranian conflict that has continued for nearly four weeks, the oil market is undergoing a classic “time pricing” episode. 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 up into the future. Once it crosses the key node in mid-April, the pricing 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 path of “escalation leading to de-escalation,” but instead shifting to a test of the market’s resilience around critical levels. Whoever can hold out until the imbalance between supply and demand is priced by the market will seize the initiative in negotiations. This means that even if the conflict ends in the short term, oil prices are unlikely to return to their prior range. The current supply losses are reshaping the global oil balance over the coming period.

The following is the original text:

In this article, I will break down several scenarios that may emerge. As the Iran conflict has now lasted 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 Iran conflict,” in which we wrote:

Below is how oil prices would be affected under different scenarios (“loss barrels” already include the time required to restore production capacity):

Scenario 1: Tanker transport resumes the next day

→ The Brent average for the full year will be in the range from the low end of $70 to the high end of $80 (about a loss of 210 million barrels)

Scenario 2: Tanker transport resumes before March 15

→ The Brent average for the full year will be in the mid-to-high $80s (about a loss of 290 million barrels)

Scenario 3: Tanker transport resumes before March 22

→ The Brent average for the full year will be in the low $90s (about a loss of 370 million barrels)

Scenario 4: Tanker transport resumes before March 29

→ The Brent average for the full year will be in the mid-to-high $90s (about a loss of 450 million barrels)

If tanker transport still cannot return to normal by March 29, the situation the oil market would face is even something it would be unwilling to contemplate. The only way out would be for demand to be forced to contract, and prices would be pushed to extreme levels.

Soon after the report was released, the International Energy Agency (IEA) announced a coordinated release of a total of 400 million barrels of global strategic oil 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 delivers the biggest gift to the bulls,”

From a trading perspective, before this layer of “buffer cushion” is exhausted, traders will not rush to push oil prices higher. The concentrated SPR release can indeed relieve near-term supply anxieties, but it is only a temporary fix. The market will remain tight as long as tanker transport does not return to normal for even a single day, and oil prices will gradually move up.

On the other hand, if the situation eases rapidly—such as an immediate ceasefire or reaching an agreement—oil prices will fall quickly. For example, if a peace agreement is reached by March 15, global inventories would net increase by 110 million barrels (400 million barrels released minus 290 million barrels lost).

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

Conversely, if there is no peace agreement and the supply disruption continues until the end of March, global inventories will net decrease by 50 million barrels, and with each additional week, the gap will widen by roughly 80 million barrels.

Therefore, the role of SPR is only to “buy time,” not to solve the core problem. Tanker transport must return to normal. However, it does prevent a catastrophic price spike in the short term, thereby averting a large-scale collapse in demand.

Now that time has moved forward, we have entered the “March 29 scenario” set at the beginning of the month. Next, we will judge where the oil market is headed based on the latest facts.

Facts

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

Iraq: -3.6 million barrels per day

Kuwait: -2.35 million barrels per day

UAE: -1.8 million barrels per day

Saudi Arabia: -3.05 million barrels per day

Bahrain: -0.18 million barrels per day

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

Scenario analysis

I will lay out three possible paths:

1. The war ends within this week, and transport resumes by this weekend

2. The war ends in mid-April

3. The war ends in late April

It is important to note that the release of 400 million barrels of SPR, compared with our initial assessment on March 9, has given the market more time. The following oil price scenarios account for this change.

Scenario 1: Ends this week

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

Impact on Brent: near-term pullback to the low $80s; 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: near-term pullback to the low $90s; the full-year average in the mid-to-high $90s

Scenario 3: Ends in late April

Impact on global inventories: -370 million barrels

Impact on Brent: near-term spike into the $110 range; the full-year average at $110–$120

Key inflection point: Mid-April

For the oil market, there is a clear “critical point.” The market widely expects the conflict to end before mid-April, and this expectation is crucial to how oil prices are priced.

Oil prices are the product of “marginal pricing.” As long as the market believes supply is still “barely adequate,” panic will not emerge. The oil market situation right now is exactly that—there is a lack of panic.

Statements from the Trump administration, the relaxation of sanctions on Iranian and Russian crude, and the release of SPR have all suppressed oil prices.

But once this critical point is crossed, these factors will no longer work.

So far, the evaporation effect of global “tanker-in-transit crude” has not truly passed through into onshore inventories. But our view is that by mid-April, this impact will fully show itself.

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

Long-term impact

In Energy Aspect’s latest weekly report, its calculations put the cumulative lost supply volume at about 930 million barrels. Of that, the cumulative production losses from May through December are about 340 million barrels.

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

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

Under the scenarios above, Goldman Sachs also offered a hypothesis: if the conflict continues for another 10 weeks, what kind of state the market would be in. Its judgment is basically consistent with our earlier scenario analysis.

At its core, there is a “critical point” in the oil market. Once you cross this line, there is no going back.

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

How long will it last?

Up to now, I have been avoiding making a judgment about when this conflict will “end.” On the one hand, I don’t want to “plant a flag,” and on the other hand, I genuinely can’t predict it.

But one thing is clear: this time is different from previous conflicts. What we’ve commonly seen in the past is a strategy of “escalate to de-escalate,” and now there are hardly any signs of that.

Retaliatory strikes occur without warning; Iran’s strike range also seems no longer limited to Israel, but has expanded to Gulf countries. It is precisely this kind of response that made me realize from the beginning—this time, things are different.

With the conflict having lasted nearly four weeks, I’m increasingly worried that as long as no agreement has been reached and delays continue, the probability of reaching an agreement will drop significantly with each additional day. As we analyzed in our article “Time Is Running Out,” Iran understands the logic of how the oil market operates very well. It only needs to wait until the market touches that “critical point,” and then it can seek the largest concessions from the United States in negotiations. From a tactical perspective, there is no advantage for it to reach an agreement at this time. The card of the Strait of Hormuz has already been played, and it will be difficult to use it again in the future.

For the Gulf states, if the current Iranian regime is not overturned, this “chokepoint” situation will likely repeat itself again and again in the future. Even if some kind of “toll” mechanism is established, this kind of uncertainty is still hard to accept.

So, logically, the initiative is not in the hands of the United States, but on Iran’s side. In this situation, Iran has more incentive to push the situation toward the oil market’s “critical point” to test America’s capacity to withstand it. All it needs to do is “hold on” for another three weeks, until the market begins to show cracks.

However, it should be emphasized that I am not a geopolitics expert, and I do not have full confidence in judgments of this kind. What I can provide is only an assessment of the current situation based on fundamentals.