Energy price forecasts revised higher amid stalemate

Energy price forecasts have been revised upward due to ongoing tensions. The US-Iran Memorandum of Understanding has proven ineffective, with mediation efforts yet to restart negotiations. Oil prices have risen from late June and early July levels, with ICE Brent trading around $90 per barrel. The Strait of Hormuz, once a busy passage, has seen a decrease in oil flows to around 5 million barrels per day, with estimates ranging from 4-8 million barrels per day.

Total Persian Gulf oil exports are now roughly 50% of pre-war levels. China continues to provide relief to the oil market by reducing imports, which remain below year-ago levels. With strategic reserves exceeding 1.2 billion barrels, China should be able to sustain lower imports for the rest of the year. Oil price scenarios include a base case of a stalemate persisting until shortly before the November US mid-term elections, followed by limited stabilisation; an optimistic case of a September agreement restoring flows to pre-war levels; and a pessimistic case of escalation disrupting Hormuz and bypass routes, leaving year-end flows near 50% of pre-war levels.

Diesel tightness is more acute as disruptions coincide with reduced Russian supply, which is the world's second-largest diesel exporter. European gas prices have exceeded EUR70 per megawatt-hour, their highest since March, due to lower Persian Gulf LNG supply and strong Asian spot buying. Some member states may need to accelerate purchases to support prices as winter approaches, with EU storage currently at 72-73% full, well below the 90% target.