Analysts Outline 5 Key Factors to Watch as Strait of Hormuz Reopening Nears

With reports suggesting a deal to reopen the vital Strait of Hormuz is imminent, investors are closely watching how energy markets will react. Macroeconomic research firm Capital Economics has identified five key factors that will determine the impact on oil and gas prices in the coming months.

Oil Supply and Inventories

The most immediate focus will be on the resumption of tanker traffic, which has been well below normal levels, according to the firm. While a temporary spike in oil departures is expected, Capital Economics noted the price impact may be smaller than after a previous agreement because less oil is currently trapped in the Gulf.

A critical factor is the pace of recovery in regional energy output. Middle East oil exports in July were still approximately 9 million barrels per day (bpd) below pre-war levels. While oil executives suggest most crude capacity can be restored within months, some LNG production will face longer delays, with Qatar Energy reporting 17% of its LNG capacity will be offline for two to three years.

Even with a swift reopening, global commercial oil stocks could approach severely depleted levels. An emergency release of 400 million barrels by IEA members is set to end by mid-September. To prevent further market tightening, Capital Economics stated that either Gulf exports must rise by 2-3 million bpd in the next month or the IEA must announce another release from strategic reserves.

Ad

Broader Market Dynamics

Offsetting some supply concerns are a sharp drop in China's crude imports and a rise in U.S. petroleum exports. However, Capital Economics also pointed to remaining risks, including the possibility of a U.S. ban on oil product exports and continued threats to shipping beyond Hormuz, such as the Houthi blockade of the Bab el-Mandeb Strait.

For natural gas, the firm warned that a reopening will offer limited near-term price relief in Europe. With the continent's gas storage levels lower than in recent years heading into the winter, seasonal demand dynamics are expected to keep prices firm. Based on these factors, Capital Economics' baseline forecast sees Brent crude ending the year at $75 a barrel, with EU natural gas prices remaining near €50-55 per megawatt-hour (MWh) through the winter.