On the Eve of the Oil Crisis

Source: Wall Street Intelligence Circle

The market hasn't even opened yet, and Wall Street is already speculating on $100 oil prices.

On Monday, as soon as Goldman Sachs saw the situation deteriorating, they made a quick estimate:

If the Strait of Hormuz is completely shut down for 6 weeks, oil prices should add an $18/barrel risk premium. At that time, US crude oil was about $67, and Goldman Sachs believed the reasonable price was around $85. However, the market reaction was even more intense than their model; by Friday this week, oil prices had already risen above $91—meaning the market is more pessimistic than Goldman Sachs.

After further research, Goldman Sachs found that the issue might be worse than expected:

First, the volume of oil passing through the strait is actually decreasing

Goldman Sachs estimates that, under normal circumstances, about 18 million barrels of oil are transported through the Strait of Hormuz every day, but now the flow is down to only about 10%. The risk is no longer theoretical—it has begun to impact real supply. If the situation lasts, inventories will be quickly depleted.

Note: If oil prices gap above $100 at Monday's opening, it's not hype—it's a collapse in physical delivery capacity.

Second, alternative routes are far from sufficient

Can't the shipments be rerouted? In theory, yes. For example, via Saudi Arabia’s Yanbu Port or the UAE's Fujairah Port. Theoretically, 3.6 million barrels/day can be rerouted, but in reality, only 900,000 barrels/day have been rerouted so far—replacement capacity is far below expectations.

Third, shipping companies have started to wait and see

Goldman Sachs also did an interesting survey. They found that many shipping companies are currently adopting a “wait and see” approach. Many people think oil tankers are not moving because insurance costs are too high, but that's not the main reason. Even with increased insurance costs, transporting oil is still profitable—the real issue is the fear of missile attacks. So, many ships are choosing to pause operations for now.

Fourth, this supply shock is extremely severe

Goldman Sachs did the math. This Middle East oil supply shock involves 17.1 million barrels/day. By comparison, the peak supply shock during the 2022 Russia-Ukraine war was only about 1 million barrels/day—meaning this time, the scale is 17 times larger, and the market is suddenly panicking.

Note: The 17.1 million barrels/day gap given by Goldman Sachs is compared to the current global demand of about 100 million barrels/day, which means that one in every six barrels of oil worldwide would be unavailable.

Therefore, Goldman Sachs gave a very important judgment—if there are no signs of resolution in the next few days, oil prices are likely to break $100 next week. It's not that inventory is insufficient; it's that the market will start pricing in risk in advance.

The real danger here isn't just the oil price—it's the chain reaction. Historically, almost every oil shock has triggered the same sequence: rising energy prices → higher inflation → higher interest rates → economic slowdown → stock market decline.

What the market really fears is not oil reaching $100, but that once it does, prices won’t stop rising. When the market opens on Monday, it will no longer be about “the situation,” but about “the math.”