Q+A: Could oil hit $US150 a barrel?

Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Sean Aylmer. Crude oil prices are back above $100 a barrel after Donald Trump rejected Iran's latest proposal to reopen the Strait of Hormuz and Tehran, refusing to soften its demands. The renewed uncertainty is already hitting bond markets, with investors worried that another surge in energy prices will make inflation that much harder to control. So how much worse could this get? And how long does it take for another oil shock to fully make its way through to Australian households and businesses? Vivek Dhar is Head of Commodities and Sustainability Research at Commonwealth Bank. Vivek, welcome back to Fear and Greed. Thank you. So where are we up to, Vivek? If the conflict drags on... And straight after Moors remains closed or at least heavily restricted, where can oil prices go to? Sure. So look,

in terms of where or what we're dealing with right now, and if we compare where we are now to say when the Iran war started, the functional difference is we're sitting with a lot fewer inventories than we were before. And so when we get to a position that we are right now, which is that inventory depletion is on the radar again, and we would put this number at around five to 10 weeks, it really does mean that if any major player in terms of US or Iran overplays their hand, we could really risk physical shortfalls in this market. And I would say that is why the market is very jittery right now. Because we know that everyone is trying to leverage what they can in these talks between the US and Iran. But if we see this prolong for longer than markets can handle, you start having to price in these worse outcomes. And so when we talk about what happens if we get to inventory depletion, we would say that we need to see prices get to levels where emerging Asian economies are basically see uncontrolled demand destruction. And by that, I mean high prices for oil, which end up reducing demand, particularly for the most vulnerable and poorest Asian economies, like say Sri Lanka, Bangladesh, Thailand, Vietnam. These are the economies that are really exposed. And for that price to induce that level of uncontrolled demand destruction, we estimate that at about $150 a barrel for Brent.

How likely is it that Brent could get to that level? Maybe that's an unfair question because who knows how the negotiations go. But if we don't get some sort of solution in the next five to 10 weeks, is it possible for prices to go to those levels?

Look, I'd say that's the tail risk. And that's the risk the market has to almost look at, but consider, is this really what we're going to get to? And that's what makes this such a complicated question. way to look at the market is you're almost putting, say in our view, about 15% on that $150 barrel mark being reached. We think that where we are right now, we have seen Iran leverage nearly everything they have. So control over the state of Hormuz, via their proxies, the Houthis, they are showing control over the Bab al-Mandeb Strait, which is the Red Sea Route, and they've also attacked key pipeline