Morgan Stanley Warns: Oil Prices Could Surge Again If Hormuz Blockade Extends Beyond Late June

If the Blockade Extends Beyond June,
U.S. Export and China Inventory Buffers Could Reach Their Limits

There has been a warning that the recent stability in international oil prices could quickly give way to another surge, depending on whether the blockade of the Strait of Hormuz is prolonged. Morgan Stanley noted that the expansion of U.S. crude oil exports and a decrease in China’s imports have so far absorbed the shock to the market, but if the blockade extends beyond June, the supply buffer could reach its limit and oil prices could soar again.

According to Bloomberg on May 11 (local time), Morgan Stanley stated in a recent report that the international crude oil market is currently in “a race against time.” With the Strait of Hormuz effectively paralyzed due to a dual blockade by Iran and the United States, the analysis suggests that the longer the blockade continues, the weaker the factors that have so far restrained oil price increases may become.

Since the onset of the Iran war on February 28, oil tanker operations have been halted due to the blockade of the Strait of Hormuz, raising concerns about supply shortages in the market. However, international oil prices have not yet surpassed the levels recorded during Russia’s invasion of Ukraine in 2022. Morgan Stanley pointed to the market’s “buffer” as the reason. It explained that increased crude oil exports from the United States and reduced imports by China have largely offset the supply shock.

According to the report, the United States has recently expanded its crude oil exports by about 3.8 million barrels per day, and China has reduced its imports by around 5.5 million barrels per day. This has enabled the global market to absorb a supply squeeze effect of approximately 9.3 million barrels per day.

However, Morgan Stanley emphasized that these buffers are not permanent. In particular, it is uncertain whether the United States can maintain its current high level of crude oil exports, and the pressure is likely to increase over time. As for China, while it currently has some flexibility through inventory and import adjustments, the burden could grow if the blockade is prolonged.

Morgan Stanley presented a base case scenario in which the Strait of Hormuz reopens before the United States has to reduce exports or China needs to halt its import cuts. However, it warned that if the blockade continues through the end of June or into July, the situation could change.

The report stated, “Our base case is that the strait reopens within June, while the buffer capacity of the U.S. and China remains partially intact. However, if the blockade extends through the end of June or into July, the spot price of Brent crude could undergo the sharp correction it has so far avoided.”

In its base case scenario, Morgan Stanley forecast that the spot price of Dated Brent crude would gradually decrease to $110 per barrel in the third quarter of this year, $100 per barrel thereafter, and $90 per barrel in the fourth quarter. In contrast, under a bullish scenario that assumes the blockade is prolonged, it projected that Brent crude prices could soar to between $130 and $150 per barrel.

In the short term, even if the Strait of Hormuz reopens this week, Morgan Stanley believes that the impact of the supply disruption could linger for a considerable period. This is because restarting oil fields, restoring refinery operations, and normalizing tanker operations will all take time.

Morgan Stanley analyzed, “Even if the strait reopens tomorrow, it will take time to restore production facilities and normalize transportation, so the market could face an additional supply loss of about 1 billion barrels for the remainder of 2026.”

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