A limited U.S. strike on Iranian military or nuclear targets is the likeliest outcome.<\/p>\n
That\u2019s what Morningstar thinks, according to the company\u2019s equity director Joshua Aguilar, who outlined in a note sent to Rigzone late Thursday that this scenario \u201cwould mean no impact on global physical flows, so the global surplus would remain intact\u201d.<\/p>\n
\u201cAny price action would be due to the geopolitical premium,\u201d he added.<\/p>\n
In the note, Aguilar highlighted that Morningstar thinks a limited strike event is a base case for several reasons.<\/p>\n
\u201cFirst, we\u2019d flag U.S. domestic political incentives,\u201d he said.<\/p>\n
\u201cU.S. midterm elections take place later this year, and Trump has made keeping inflation down a cornerstone of his platform, which includes prices at the pump,\u201d he added.<\/p>\n
\u201cSecond, we think the U.S. hand is stronger following the capture of Maduro, both from the standpoint of a successful military operation, and because Venezuelan output \u2026 gives the U.S. somewhat of a physical, heavy-sour crude buffer that can substitute for Iranian crude exports in the event of a limited strike with some supply disruption,\u201d he continued.<\/p>\n
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\u201cThird, any severe strike would potentially strengthen OPEC+\u2019s hand,\u201d he went on to state.<\/p>\n
While Aguilar said in the note that a severe strike seems possible, he added that it is much less likely. Aguilar also noted that Morningstar thinks the odds of a Strait of Hormuz closure are remote. He conceded, however, that this \u201cwould be the most severe case for global oil prices\u201d.<\/p>\n
In the note, Aguilar pointed out that global oil benchmarks \u201chave risen significantly since the start of the year\u201d.<\/p>\n
\u201cBrent futures now trade at nearly $72 per barrel, rising nearly 20 percent since early January,\u201d he said.<\/p>\n
\u201cThis contradicts nearly universal bearish prognostications for crude prices earlier in the year related to supply glut fears,\u201d he added.<\/p>\n
Aguilar revealed in the note that Morningstar is maintaining its midcycle estimate of $65 per barrel Brent.<\/p>\n
In a J.P. Morgan report sent to Rigzone late Thursday by Natasha Kaneva, the company\u2019s head of global commodities strategy, analysts at J.P. Morgan, including Kaneva, said they \u201ccontinue to assign a low geopolitical risk premium to the Middle East\u201d.<\/p>\n
\u201cWith affordability and broader economic conditions central to U.S. electoral dynamics, the president must ultimately weigh the economic costs of any strike on Iran ahead of the November mid-term elections,\u201d the analysts said.<\/p>\n
\u201cOur baseline scenario assumes some form of agreement with Iran and a ceasefire in Ukraine this year.\u00a0While the probability of military action against Iran has increased, we expect any such action to be surgical and designed to avoid Iran\u2019s oil production and export infrastructure,\u201d they added.<\/p>\n
\u201cGiven the region\u2019s proximity to major energy chokepoints, geopolitically driven crude price rallies may persist, but these should eventually fade as global fundamentals remain relatively soft,\u201d they continued.<\/p>\n
In the report, the J.P. Morgan analysts said their balances \u201ccontinue to project sizable surpluses later this year, suggesting that production cuts of two million barrels per day will be needed to prevent excessive inventory accumulation in 2027, which would help stabilize prices at around $60 per barrel Brent\u201d.<\/p>\n
In a comment sent to Rigzone this morning, Aaron Hill Chief Market Analyst at FP Markets, noted that WTI oil prices \u201ccontinued to clear out offers, refreshing year to date highs of $67.01 in recent trading\u201d.<\/p>\n
\u201cThe bid came on the heels of U.S. President Donald Trump\u2019s warning to Iran that it has 10 to 15 days to reach a nuclear deal, or \u2018really bad things\u2019 will happen. The U.S. is assembling two aircraft carriers, fighter jets, and refueling tankers in the region,\u201d he added.<\/p>\n
Rigzone has contacted the White House and the Iranian Ministry of Foreign Affairs for comment on the Morningstar and J.P. Morgan reports, and Hill\u2019s statement. At the time of writing, neither have responded to Rigzone.<\/p>\n
To contact the author, email\u00a0andreas.exarheas@rigzone.com<\/a><\/p>\n
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