La Jornada: Fitch: oil will be 24% more expensive due to long closure of Hormuz

Fitch Ratings forecast a 23 to 24 percent rise in the cost of crude oil this year due to the effective closure of the Strait of Hormuz, which has lasted longer than expected. He estimated that the road will begin to reopen in July.

“For our revised oil price projections, we have assumed that the closure of the strait will last about five months, compared to previously expected one or two months.”

The risk firm’s forecasts point to Brent on average being 24.3 percent more expensive and a barrel of West Texas Intermediate 23.1 more expensive.

The higher estimates reflect disruptions to the flow of liquefied natural gas from Qatar through the strait and damage to that country’s infrastructure.

The main factor that influences the variation in the oil price is the rating agency’s review of the duration of the effective closure of the area.

Before the war, 15 million barrels per day of crude oil and 5 million derivative products passed through Hormuz, representing approximately 20 percent of world oil consumption.

“The reopening could occur relatively quickly, but the process could also be complex and uncertain,” the rating agency added.

“For our revised oil price projections, we have assumed that the Strait closure will last about five months. Average annual oil prices are likely to be lower if the closure lasts less than five months.”

Additionally, Fitch expects a rapid recovery in production following the reopening, given that there has been no significant damage to oil infrastructure.

“We expect production to gradually increase to near-normal levels in the coming weeks, depending on the geology of the region and the ability of producers to manage production within Organization of the Petroleum Exporting Countries (OPEC) quotas.”

The rating agency expects Brent to remain between $100 and $110 per barrel between May and July, with the closure, before falling to $70 per barrel in September, a level determined by supply and demand, although with a residual premium. He mentioned that OPEC is likely to produce at maximum capacity to make up for volumes lost due to the shutdown.

OPEC’s reserve capacity stood at 3.6 million barrels per day before the conflict.

In addition, Fitch estimates a growth in supply from countries outside the organization of approximately 3 million barrels per day, including 1.2 million previously forecast for the United States and Latin America. Added to that is another million barrels per day from Kazakhstan and Venezuela.

“Higher prices would also encourage production growth in the United States and Russia,” Fitch said.