CITIC Securities: Market Underestimates Near- and Mid-Term Upside Risks to Oil Prices

A research note from CITIC Securities said the market has underestimated short- and medium-term upside risks to oil prices. According to Jin10, the note said that in the short term the Strait of Hormuz has been closed for several weeks, forcing more oil wells to shut, and that prolonged shutdowns could lead to permanent losses in some production capacity. Over the longer term, the report said that amid low capital expenditure, the number of drilled-but-uncompleted wells and new drilling activity in the United States has repeatedly hit record lows. It said this suggests U.S. crude output at high levels may be difficult to sustain, and that remaining supply and pricing power could increasingly shift to the Middle East. The note added that the market had previously been overly optimistic about the pace at which conflict in the Middle East would end, but that tensions have become more evident. It said the market has recently begun to gradually price in higher longer-dated oil prices, and that potential inflation risks also warrant attention.