Oil Prices Could Surge to $90+ as Geopolitical Tensions Escalate, Warns Bank of America Analyst

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Markets Brace for Prolonged Energy Volatility Amid Middle East Unrest

Global oil markets face sustained upward pressure with Brent crude potentially averaging $90 per barrel through 2024—and spiking even higher—as escalating Middle East conflicts threaten supply stability, according to a sobering new analysis from Bank of America. Francisco Blanch, the bank’s head of global commodities and derivatives research, warns that intensifying hostilities between Israel and Iran, coupled with persistent OPEC+ production cuts, could tighten inventories and push prices beyond current projections.

The warning comes as geopolitical flashpoints multiply. Recent Iranian missile strikes on Israel, followed by Tel Aviv’s retaliatory drone attacks, have reignited fears of a broader regional war—one that could disrupt critical shipping lanes like the Strait of Hormuz, through which 20% of the world’s oil supply flows. Meanwhile, OPEC+ members, led by Saudi Arabia and Russia, continue withholding 2.2 million barrels per day (bpd) from global markets to stabilize prices, exacerbating the supply-demand imbalance.

The $90 Floor: A Best-Case Scenario?

Blanch’s baseline forecast hinges on Brent crude averaging $90 for the remainder of 2024, a 12% increase from current levels around $80. However, he emphasizes that this projection assumes no major supply shocks. “The oil market is walking a tightrope,” Blanch noted in the report. “Any escalation—whether from prolonged OPEC+ discipline or a direct threat to Persian Gulf exports—could send prices soaring past $100.”

The analysis aligns with growing consensus among energy analysts. Goldman Sachs recently revised its year-end Brent target to $87, citing resilient demand and inventory drawdowns. The International Energy Agency (IEA), meanwhile, warns of a looming supply deficit in Q3 2024, with global demand expected to outpace production by 1.5 million bpd.

Iran-Israel Conflict: The Wild Card

The simmering Iran-Israel conflict represents the most immediate risk. Following Tehran’s unprecedented direct attack on Israeli soil in April—a retaliation for an alleged Israeli strike on its Syrian consulate—markets initially priced in a brief risk premium. But with Israel’s counterstrike on Isfahan and ongoing proxy skirmishes in Lebanon and Yemen, traders now fear a protracted shadow war.

“Historically, Middle East tensions have caused short-lived price spikes,” said Rachel Ziemba, a geopolitical risk advisor at Horizon Engage. “But if Iran’s oil exports—currently around 1.5 million bpd—are curtailed by stricter U.S. sanctions or sabotage, we’re looking at a structural supply crisis.”

Iran’s oil exports, already under U.S. sanctions, have been a contentious issue. Despite enforcement efforts, China and India continue importing discounted Iranian crude, providing Tehran with critical revenue. Any disruption to these flows could remove over 1% of global supply overnight.

OPEC+ Holds the Levers

The producer alliance’s supply strategy remains pivotal. OPEC+ is set to meet on June 1 to discuss extending voluntary cuts, with Saudi Arabia likely to advocate for maintaining restrictions until inventories shrink further. “The group wants to avoid a repeat of 2023, when premature production hikes triggered a price collapse,” said Vandana Hari, founder of Vanda Insights.

Complicating matters, several OPEC+ members—notably Iraq and Kazakhstan—have repeatedly exceeded quotas, raising doubts about compliance. The group’s cohesion will be tested if prices climb too high, incentivizing cheaters to pump more.

Demand Resilience Defies Expectations

Contrary to earlier forecasts of an economic slowdown, global oil demand has remained robust. The IEA now projects 2024 consumption to grow by 1.2 million bpd, driven by emerging markets and resilient U.S. activity. Jet fuel demand, a key COVID-era laggard, has finally surpassed pre-pandemic levels.

“Even with high interest rates and inflation, mobility data shows little sign of demand destruction,” said Blanch. China’s post-COVID recovery, though uneven, continues to buoy sentiment, with refinery throughput hitting record highs in March.

Investor Implications: Hedging Against Uncertainty

For traders, the current landscape presents both risk and opportunity. Bank of America advises clients to position for upside volatility, particularly in Q3 when seasonal demand peaks. “Options markets are underpricing tail risks,” Blanch cautioned, suggesting bullish strategies like call spreads on Brent futures.

Meanwhile, energy equities have lagged behind crude prices, creating potential value plays. The S&P 500 Energy Sector trades at a 30% discount to the broader market based on forward P/E ratios—a gap that could narrow if earnings revisions catch up to rising oil.

The Road Ahead: A Delicate Balance

As summer approaches, the oil market’s trajectory hinges on three variables: geopolitical stability, OPEC+ discipline, and economic resilience. While $90 Brent seems increasingly likely, the specter of triple-digit oil looms if any single factor tips out of equilibrium.

For now, Blanch’s advice to investors is succinct: “Hope for the best, but prepare for higher.” In a world where conflict and cartels collide, the only certainty is volatility.