President Trump is signaling "make a good deal" or walk away with no deal at all.
Overnight hostilities around the Hormuz maritime chokepoint highlight just how fragile the ceasefire remains as Washington and Tehran try to solidify a peace deal to end the conflict.
The timing of a peace deal is very important because, as we have warned readers, a no-deal scenario would collide with a deteriorating oil-supply backdrop by summer, when global buffers and floating storage begin to run down, and SPR releases become less effective in offsetting lost supply from the Gulf region.
Building on UBS analyst Arend Kapteyn's note from Friday titled"When The Oil Buffers Run Out,"Brookings' Robin Brooks and Ben Harrisoutlinein a note thatoil markets could face a massive price shock by mid-July as temporary supply buffers run dry.
There appears to be consensus building among Wall Street analysts at Goldman, JPMorgan, UBS, and many other desks that if the Hormuz chokepoint is not reopened in the near term, an energy cliff may materialize in early summer.
The Brookings analysts say crude prices have so far been depressed by three factors: trade rerouting, inventory drawdowns, and market expectations that the U.S.-Iran war would end quickly.
"Thebottom lineis that the supply shortfall will build in the coming months as temporary buffers are depleted. And if markets grow increasingly pessimistic over an eventual resolution to the impasse in the strait, oil prices may rise materially higher," the Brookings analysts said.
However, theywarned that the three factors capping crude prices are fading. Russian floating stocks are likely depleted by the end of April; Iranian floating stocks are expected to be gone by the end of May; and the IEA emergency oil release is projected to be exhausted by July 9.
They continued, "It is fair to say that the scale of the supply shortfall is now well-known to markets.But the timeline on which temporary buffers run out and how this interacts with prices is of critical importance."
"This interaction means non-linear outcomes in prices—in other words, sharp price spikes—are possible the longer this conflict is expected to take. The potential for non-linear outcomes grows the longer oil tanker traffic through the Strait of Hormuz remains severely encumbered," the analysts ended the note.
Source: ZeroHedge News
