UBS warns oil prices will keep climbing until demand breaks as Strait of Hormuz closure deepens Proactive uses images sourced from Shutterstock
UBS has told clients the central question for oil markets is no longer whether prices will rise, but how high they must go before demand is destroyed, as the near-closure of the Strait of Hormuz shows no immediate sign of easing.
Brent crude surged to an intraday high of $109 per barrel earlier in Monday’s session before pulling back to $97.06, still up 12% on the day.
The Strait of Hormuz, the narrow waterway through which around 20 million barrels of crude and refined products normally pass each day, is now seeing only two or three tanker crossings daily against the typical 30 to 35.
Iraq, which has almost no domestic storage capacity, has already been forced to shut in a substantial portion of its production, with Kuwait also reported to be curbing output for the same reason.
Saudi Arabia is rerouting crude via the East-West pipeline to its Yanbu terminal on the Red Sea, partially bypassing the Strait, but UBS says whether the UAE can do the same remains unclear following reported damage to the port of Fujairah.
The knock-on effects are already severe in refined products markets, where gasoil futures in Europe and heating oil contracts in the United States have both crossed $150 per barrel, roughly double their levels at the start of the year.
UBS describes strategic reserve releases as a limited tool, calling them a drop in the ocean relative to the scale of the disruption if the closure is prolonged.
The bank’s own end-2026 Brent forecasts of $65 to $67 per barrel imply it expects the Strait to eventually reopen and markets to normalise, but at current spot levels of $97.06 that scenario would represent a fall of around 33% from here.
For investors, the note frames the trade as binary: a prolonged closure means prices grind higher until consumption falls sharply, while a rapid resolution would bring prices down quickly but not all the way back to pre-conflict levels, as restarting production and export flows takes time.
Brent crude (BZ=F) was trading at $97.06 at time of publication.