Oil and Gas Sector Update : Crude Compass: The Rising Floor Choice Institutional Equities
Developments over the past week:
* Iran threatened to close Bab-el-Mandeb, jeopardizing a route carrying 7.2 million barrels per day (mbd), up from 3.9 mbd before the crisis, which has partially offset disruptions in the Strait of Hormuz
* According to Bloomberg, OPEC production falls to a multi-decade low as output of 11 of its current members dropped by 1.2 mbd to 16.3mbd, with Iran accounting for half of the decline
* The UK government now expects oil production from the Gulf to recover in fourteen months, up from six months expected previously
In our opinion:
* Provided, the movement through Strait of Hormuz remains limited, we continue to expect physical deficit of 7-11 million barrels per day as highlighted in the prior edition of Crude Compass
* As disruptions from Hormuz persist and OPEC output falls to multi-decade lows, the market is increasingly confronting a shortage of available crude supply, supporting a structurally firmer oil price environment
* In such an environment, diesel cracks are likely to settle at a structurally higher base, as restoring market balance would require material demand destruction in sectors where diesel consumption remains closely tied to
economic activity We have built the following scenarios for Brent price:
* In a scenario - where a prolonged stalemate leads to an extended standoff, such that sustained reopening of Strait of Hormuz is delayed till end July, Brent could remain elevated for longer, resulting in FY27 average of USD98/b despite eventual normalization later in the year
* Provided there was no sustained reopening of Strait of Hormuz by end of May, we now expect the Brent price to average at USD89/b for the FY27 as highlighted in earlier edition
* In a scenario where traffic through the Strait of Hormuz normalizes materially faster than our assumed three-month timeline following its sustained reopening, we continue to view average of USD 82/bbl as a floor for Brent futures in FY27, supported by the gradual restoration of curtailed supply and inventory replenishment demand Therefore, we raise our FY27 base-case Brent estimate to USD 89/b from USD82/b previously. Separately, Brent futures have averaged USD 102/b on a fiscal year-to-date basis.
For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131
