Morgans deputy head of research, Adrian Prendergast, anticipates the most likely outcome of the US–Israel–Iran conflict will be a short-duration disruption to oil markets. Brent crude briefly surged above $US120 a barrel, a 60 per cent increase from pre-war levels near $US70. It has since eased back to around $US95 to $US100 as markets priced in a temporary supply shock rather than a structural shortage.
The effective closure of the Strait of Hormuz has removed over 15 million barrels a day of oil and roughly 80 million tonnes a year of LNG from seaborne markets. Prendergast noted this represents the largest physical oil supply disruption since 1973. However, the forward curve remains in steep backwardation, suggesting traders expect the disruption to be short-lived.
Traders predict oil prices will retreat to between $US75 and $US85 a barrel once the conflict ends and pre-war supply surpluses re-emerge. Prendergast says the rally has created windfall earnings for energy producers; however, he warns these gains could quickly unwind if the conflict resolves.
Prendergast maintains Woodside Energy as Morgans’ top sector pick with an accumulate rating and $33.55 target price. Woodside Energy, an Australian petroleum exploration and production company, benefits from its leverage to both oil and LNG prices. The company’s strong dividend protection remains even if oil prices decline.
