Here's what the next phase of the Iran war oil crisis could look like

HFI Research says it believes oil prices are headed for a record-breaking run in several months.
The research firm sees “panic buying” and hoarding as the world draws down crude supplies.
Shortages could result in a “ripple effect” that pushes prices past $150 a barrel, it speculated.

The world may be about to enter the next chapter of the Iran war oil crisis that sees crude soar even higher, one research firm predicts.

HFI Research, an investment research firm specializing in energy markets, outlined a grim series of events that could unfold in oil markets next as the Iran war wraps up its second month with no peace deal in sight.

Oil prices, which have soared since the closure of the Strait of Hormuz, just hit fresh wartime peaks this week. Brent crude, the international benchmark, rose as high as $126 a barrel early Thursday, while West Texas Intermediate crude rose as high as $110 a barrel.

Prices cooled later in the day, but are likely headed back to new peaks within several weeks’ time, the firm speculated this week. It sees Brent potentially soaring past $150 a barrel, above the peak during the Great Financial Crisis.

For comparison, global oil demand cratered by around 3% during the GFC, Wilson Wang, the founder of HFI, told Business Insider in an email. The world is currently facing a supply shortage of around 13 million barrels a day, or 10% of global demand, according to estimates from the International Energy Agency.

“We are 3x away from the worst financial crisis in recent memory. Prices will have to get very extreme,” Wang said.

Previously, the firm said it believed that the oil market had already hit its “breaking point,” a point of no return, where sustained supply shortages drive crude prices higher and higher.

Here’s how it sees that dynamic playing out over the next several months.

More flight cancellations, production cuts

Silhouette of a plane taking off at sunset — More flights could get canceled as the supply of jet fuel runs low.Kevin Carter/Getty Images

First, Europe and Asia will continue to feel the pain of the supply shortage. More flights are likely to get canceled as jet fuel runs low in the two regions, while refineries, which produce oil products from raw crude, are likely to pull back amid the shortage.

The US has stepped up as a supplier as other nations have sought alternative sources for oil products. That will likely continue for the “foreseeable future,” with petroleum exports from the US remaining near all-time highs for several weeks, the firm predicted.

“The US SPR release is effectively being exported to the rest of the world,” Wang said.

The US finally runs out of excess oil stores

Given the current pace of oil sales, the US is on track to run out “buffer” crude product stores in two weeks, and run out of buffer oil stores in about eight weeks, the firm said.

Exports will likely start to drop in several weeks’ time. Americans could also start hoarding gas once gasoline inventories start running low, which could happen in three to four weeks, Wang said, adding that the US could even enact an official ban on product exports to preserve supply.

China, which holds the world’s largest strategic oil reserve, is a wildcard. The nation has several months’ worth of oil supply it could release from its strategic reserve, but will likely continue to hoard oil anyway, HFI said, given the nation’s fear that the closure of the Strait of Hormuz is an “existential risk” to its oil-heavy economy.

“The only buffer left today between high oil prices and severely higher oil prices is the buffer in the US and China,” the firm wrote.

Panic buying begins

Worker standing next to stacked oil drums — Oil markets could start seeing “panic buying” and hoarding within several weeks’ time, HFI Research said.Kazi Salahuddin Razu/NurPhoto via Getty Images

HFI predicts that wealthier Asian countries will start panic buying, which will create a “ripple effect” in oil markets.

Once US crude exports start to fall, that will only create “higher buying pressure” in areas like Asia, the firm added. Higher crude prices will raise profit margins for refiners, which will increase the demand for oil.

“The ripple effect will be that both refining margins and crude prices rally in tandem until one of those breaks.”

Oil prices skyrocket

It’s impossible to know where oil prices will land until the US steps back from selling on the global market, the firm said, though it speculated that prices could surpass their 2008 peak to top $150 a barrel.

If Brent were to reach crisis-era highs, that would imply a 43% rally from current levels.

“Once the US runs out, that’s when you will see oil prices go parabolic,” HFI wrote of the outlook for supply and prices going forward. “It’s going to have to be materially worse than 2008.”

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