Conflict-driven supply shock reshapes market path – BNY

BNY’s Bob Savage argues Oil markets will be driven by tanker availability, refining capacity and conflict duration, with crude above $80/bbl central to inflation and demand destruction risks. He highlights that a return to $60/bbl could take three to five months, as shipping constraints, insurance costs and opaque GCC inventories slow normalization and keep product prices elevated.

War, tankers and slow normalization

“Markets are likely to focus on oil tanker availability and refining capacity in the months ahead as investors balance inflation risks against demand destruction. The full economic shocks of the U.S.-Israel-Iran conflict remains unclear. One of the issues will be related to costs for gasoline, jet fuel and diesel. How long crude oil stays above $80/bbl matters, as does the pace of price change, which is driving volatility across asset classes. Investors are likely to remain defensive longer than the conflict remains hot. The consensus view is that the U.S. will end the conflict as soon as possible – four to five weeks maximum, with oil returning to $55 to $60.”

“Oil markets will depend on the ability to move surplus GCC crude to global refineries to address product shortages. Price action over the past week has been frenetic, swinging from bullish to bearish and back, with 5% to 10% moves becoming “normal.” Whether the Strait of Hormuz can be kept open to oil, gas and other cargo remains in doubt.”

“Net, the best estimate for a return to $60/bbl is three to five months – a timeline that may not align with mid-term election pressures. There is no fast path to filling refinery product needs while the conflict continues.”

“Watch for policy levers – further IEA releases, pipeline rerouting – and any easing in tanker constraints as catalysts for normalization. Conversely, if crude above $80/bbl persists through the summer, expect accelerated demand destruction, rotation toward bonds and carry, and relative resilience in tech platforms tied to AI and data infrastructure. Active risk management and incremental buying on dislocations remain prudent until visibility improves.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)