Brent: Ongoing tensions sustain high prices – Societe Generale

Societe Generale's CCA Team Analyzes Oil Market Scenarios

The Commodity Compass Analytics (CCA) group at Societe Generale, under the leadership of Michael Haigh, Ben Hoff, and Jeremy Sellem, reports that Dated Brent reaching $141 per barrel signals extreme physical supply constraints, as disruptions in the Strait of Hormuz persist. Their scenario analysis explores a range of possible outcomes, from managed escalation to extended conflict and critical chokepoint blockages. In these cases, Brent prices could fluctuate between roughly $125 per barrel and potentially surpass $200 per barrel, with inventory levels only slowly returning to normal by late 2026.

Exploring Oil Shock Scenarios and Price Trajectories

• Scenario A: The first scenario investigates the impact of introducing tolls for ships passing through the Strait of Hormuz. The analysis considers both the financial implications and the broader effects on future conflicts. With an estimated 21,900 tanker journeys, the average toll would be about $520,000 per vessel, translating to approximately $0.26 per barrel.
• Scenario B: The second scenario centers on the conflict itself, assuming it continues from April into May with a controlled escalation followed by a relatively quick resolution. In this case, oil prices climb further, leading to accelerated demand reduction due to both higher costs and policy-driven consumption changes. As the situation stabilizes, nations would not only restore their reserves to pre-conflict levels but also increase stockpiles for greater energy security, supporting prices in the process. Here, Brent averages $125 per barrel in April.
• Scenario C: The third scenario envisions a significant escalation, possibly involving direct U.S. military involvement and a wider regional conflict, with Iran’s allies becoming more engaged. This could result in severe oil market disruptions, including a temporary closure of the Bab el-Mandeb strait.

In this most severe scenario, oil prices could surge, averaging $150 per barrel and potentially exceeding $200 per barrel. Although higher prices would further suppress demand, increased precautionary and strategic stockpiling would help support prices in the medium term, even as consumption weakens.

(This report was generated with the assistance of an AI tool and reviewed by an editor.)