As oil flows out of the Strait of Hormuz and the Middle East has reportedly exceeded pre-war levels, Goldman Sachs Group Inc. (NYSE:GS) analyst Nikhil Bhandari said that the movement could likely stabilize in the second half of next year.
$80/bbl Crude Oil?
In an interview with CNBC on Monday, Bhandari said that refineries outside the Middle East and Russia would hit maximum stretch levels by March next year and that refinery operations in the Middle East and Russia could take longer “given some damage to the infrastructure.”
Bhandari said dark fleet movement has also resulted in oil movement increasing. He was also asked when the Strait of Hormuz would open up.
“Our baselines are that the full normalization of the flows will happen sometime by second half of next year,” the analyst said, adding that the scenario would result in oil stabilizing at around $80/bbl.
He added that the crack spread, which is the profit that refineries earn to convert crude oil into fuel, has to stay “much higher” than the usual $20 spread despite the flow of oil stabilizing.
Bans Do Not Work
Bhandari also spoke about the effectiveness of bans or restrictions of fuel, as the President Donald Trump administration was mulling a ban on diesel exports, which he later ruled out. Prices have hit record highs in the recent weeks. Trump also signed an executive order on Monday allowing the sale of red-dyed diesel for highway use temporarily.
On possible restrictions imposed by China, Bhandari said that it was a “high probability” event that China would restrict their product exports.
“Domestic product inventories are quite heavily depleted locally within China. So focus on product exports is likely going to be less,” he said.
In the U.S. context, the analyst warned that restricting exports could impact gas prices at the pump, as restrictions on the “one and a half million barrels” of exports per day would result in refinery run cuts and put “more pressure upward on the gasoline prices.”
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