Morgan Stanley Warns Oil Could Surge Above $130 if Hormuz Disruptions Persist

Oil prices could rise well above $130 per barrel if disruptions to shipping through the Strait of Hormuz continue, according to Morgan Stanley strategist Martijn Rats, who warned that significantly higher prices may be needed to curb global demand.

The warning comes as markets grapple with a major supply shock following the halt of oil flows through the critical waterway, which normally handles around 20 million barrels per day of crude and refined products.

Rats said the sudden disruption represents a shock comparable in scale to the collapse in demand seen during the early months of the COVID-19 pandemic, but in the opposite direction.

“This week, we are staring at a shock of comparable size, but with the sign flipped,” he wrote in a note released Sunday, adding that the global market is suddenly “short” a massive volume of oil that would normally dwarf typical supply-demand imbalances.

Asian refiners feel the pressure first

The disruption is already rippling through global energy markets, particularly affecting Asian refiners, which depend heavily on crude shipments originating from producers located behind the Strait of Hormuz.

As supplies tighten, some refiners have begun slowing operations, signaling the growing strain on the physical supply chain.

Jet fuel prices surge

The squeeze is also becoming visible in refined fuel markets.

Jet fuel prices in Singapore, a key benchmark for Asia, have surged to around $200 per barrel, nearly doubling from about $90 before the conflict began.

The sharp increase reflects tightening supplies and rising transportation risks linked to the escalating conflict in the Middle East.

Production cuts could follow

Beyond the immediate disruption to shipping, supply risks are also emerging upstream.

Rats noted that if export routes remain blocked and storage facilities fill up, oil producers may eventually be forced to cut production, adding another layer of pressure to global supply.

Signs of this are already emerging. Iraqi operators have begun curtailing output as storage capacity tightens, while Kuwait has reportedly reduced refinery operations due to rising product inventories and limited export routes.

If the disruption persists, analysts warn that the oil market may require significantly higher prices to destroy demand and rebalance supply, potentially pushing crude prices far beyond current levels.