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What’s Priced into Brent at $117?
Robin J Brooks | Substack • • business
Key Points:
- Oil prices remain near record highs, with Brent crude around $117, close to the all-time high of just above $118 reached in March, despite supply from the Persian Gulf nearly normalizing.
- The current high prices are unlikely driven by strong demand, as data shows crude consumption in major Asian markets is only back to pre-war levels, with China still below its pre-war demand.
- The market appears to be pricing in a significant risk premium due to fears of a potential return to a "hot" war in the Persian Gulf, similar to the premium seen earlier this year.
- Analysis suggests that Brent prices currently overstate supply constraints, with the actual supply unlikely to drop below 8 million barrels per day, making a price around $90 more justified absent a conflict.
- If conflict escalates, prices could spike briefly to around $125, but the editor views this as the upper limit given current market fundamentals and risk assessments.
