Oil seen capped near $100 as Iran war demand destruction offsets supply loss

⦿ Executive Snapshot

What: A Bloomberg Intelligence survey indicates that Brent crude oil prices are likely to average between $81 and $100 over the next year, driven by demand destruction offsetting supply losses from the Iran conflict.
Who: 126 energy market participants, including asset managers and traders.
Why it matters: This finding suggests a recalibration of market expectations, treating $100 as a ceiling rather than a floor, which could influence trading strategies and investment decisions in the energy sector.

A majority of respondents expect Brent to average between $81 and $100 a barrel over the next 12 months.
Almost two-thirds of participants foresee a geopolitical risk premium of $5 to $15 a barrel persisting for years, with few expecting it to exceed $20.
Demand destruction is identified as the primary mechanism to offset supply deficits, ahead of rerouted trade flows, OPEC+ adjustments, and strategic reserve releases.
Most respondents predict global supply disruptions of 3 to 7 million barrels a day, with few anticipating outages above 10 million.
Nearly half expect flows through the Strait of Hormuz to average 51 to 75 percent of the normal 20 million barrels a day over the next year.

The survey highlights a shift in market sentiment, where traders are treating the ongoing supply disruptions from the Iran war as a chronic issue rather than a short-term crisis.
This perspective aligns with historical patterns where geopolitical tensions have prompted recalibrations in oil pricing, often leading to more stable pricing structures.

Immediate market implications include a cap on oil prices due to anticipated demand destruction, which may limit volatility and speculative trading in the near term.
Long-term implications suggest that traders may adjust their strategies to focus on managing risk rather than pursuing aggressive bullish positions, reflecting a more cautious market outlook.

Potential risks include the uncertainty of geopolitical developments that could unexpectedly escalate or de-escalate, impacting supply dynamics.
Infrastructure dependencies, particularly regarding the Strait of Hormuz and global shipping routes, could pose challenges to expected supply flows and market stability.

Monitoring the actual flow volumes through the Strait of Hormuz over the next 12 months will be critical to understanding the market's response to ongoing geopolitical tensions.
Future developments in U.S. crude production and OPEC+ responses to market conditions will signal the potential for price shifts and market rebalancing.