- Morgan Stanley warns oil markets are in “a race against time” — the US export surge and China import cuts that have cushioned the world from Hormuz disruption cannot be sustained indefinitely, with the US side showing more strain.
- Combined, the US’s 3.8 million bpd export increase and China’s 5.5 million bpd import reduction have offset 9.3 million bpd of tightness — a buffer that disappears if the closure extends into late June or July.
- Even if Hormuz reopened immediately, Morgan Stanley estimates the market is on track to lose another billion barrels over the rest of 2026 due to damaged fields, refineries, and tanker repositioning delays.
- Morgan Stanley’s base case keeps Dated Brent at $110/bbl this quarter, falling to $90 by Q4; but a prolonged closure scenario sees prices hitting $130–$150/bbl.
What Happened?
Despite the loss of nearly 1 billion barrels of seaborne oil supply since Iran and the US imposed a double blockade on the Strait of Hormuz, crude prices have not broken above their 2022 Ukraine-war peaks — a fact that has surprised markets. Morgan Stanley analysts led by Martijn Rats explain why: the US ramped up exports by 3.8 million barrels per day, China cut imports by 5.5 million bpd, and investors consistently expected Hormuz to reopen quickly. Those three factors have collectively absorbed 9.3 million bpd of supply shock. But the bank now warns that this equilibrium has a time limit. On Monday, Brent surged as much as 4.6% to nearly $106 after Trump rejected Iran’s latest peace proposal as “totally unacceptable.”
Why It Matters?
The oil market has been operating on borrowed time since the Hormuz closure began in late February. The price calm has masked genuine physical stress that is building beneath the surface. Morgan Stanley’s framing — a “race against time” — captures the core tension: every week the strait stays closed erodes the buffers that have kept prices in check. The US cannot maintain elevated export levels indefinitely given its own refinery and pipeline constraints. China, while better positioned for now, is also not immune to supply chain pressures. If the closure runs into July, the bank sees a regime shift where futures pricing must “do the work” that geopolitical anxiety alone hasn’t managed — meaning a sharp rally. For energy markets, corporate supply chains, and central bankers fighting inflation, the next six weeks are critical.
What’s Next?
The Trump-Xi summit this week in Beijing is the most important near-term variable: China is Iran’s largest oil customer and a potential diplomatic lever. If Beijing signals pressure on Tehran to reopen Hormuz as part of a broader trade deal with the US, that could shift the closure timeline. Morgan Stanley’s base case assumes reopening happens before the US and Chinese buffers are exhausted, keeping Brent on its declining path toward $90 by Q4. But every rejected peace proposal — like Trump’s Monday rejection of Iran’s latest offer — extends the clock. The bank’s bull case of $130–$150 is increasingly less theoretical and more contingent on the next two to four weeks of diplomacy.
Source: Bloomberg
