Analyst warns: Escalation of Middle East situation may cause oil prices to surge to $80 per barrel this week

Investing.com - Following the latest escalation in the Middle East situation, oil prices may remain high in the short term. Texas Capital analysts warn of a potential short-term surge.

The brokerage stated that after the coordinated strikes by the U.S. and Israel against Iran, crude oil prices are expected to fluctuate between $70 and $80 per barrel for at least the next week.

Led by Derrick Whitfield, the analyst team said in a report: “Due to ongoing military actions by the U.S. and Israel against Iran, we expect oil prices to potentially spike to $80 per barrel in the coming week.”

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Early market signals have already reflected increased tensions, with WTI crude oil trading above $72 per barrel, about 7% higher than Friday’s close. Analysts note that considering the current oil price already includes approximately $6 per barrel of geopolitical risk premium, this increase appears reasonable.

Despite the escalation, Texas Capital believes that Iran’s long-term success in blocking the Strait of Hormuz is limited. This critical shipping route carries over 20% of the world’s seaborne oil supply and about 20% of global liquefied natural gas flows. Since blocking the strait would negatively impact Iran’s exports, the country has historically avoided closing it.

Supply risk remains a core concern. Iran is OPEC’s fourth-largest oil producer, with a daily output of about 3.3 million barrels and exports around 2 million barrels per day, most of which are sold to China. Texas Capital points out that China has been stockpiling crude oil over the past year, and in case of supply disruptions, it can also utilize oil in maritime transportation.

The analysts add that continued disruptions to Iran’s exports could significantly tighten market balance, potentially shifting the market from a surplus of 2.7 million barrels per day in 2026 to roughly balanced in the second half of the year.

On policy, OPEC+ announced an increase of 206,000 barrels per day, but Texas Capital considers this move largely insignificant, as the organization estimates it has 3.3 million barrels per day of effective spare capacity that can be brought online within 90 days.

In the stock market, analysts say Iran’s military capability appears to be “severely weakened” after the strikes, and they believe Tehran’s retaliatory actions against Gulf infrastructure could further isolate the country and push it toward negotiations.

They expect the risk premium to remain elevated for at least a week, partly due to the anticipation of Iran selecting a new Supreme Leader and market uncertainty about the potential for clearer negotiations.

The company forecasts that, influenced by the escalation, crude oil prices could fluctuate by plus or minus $5 per barrel during this period. In an environment of higher and more persistent risk premiums, the firm favors companies with significant oil exposure, including Chord Energy, California Resources Corporation, Riley Exploration Permian, Talos Energy, and TXO Partners, noting that after sharp price increases, highly leveraged companies tend to outperform the broader market.

In more extreme scenarios involving disruptions to Hormuz Strait shipping, Texas Capital’s models show oil prices could rise to around $110 per barrel before falling back as supply responses materialize. However, the brokerage warns that if actual crude flows are largely unaffected, geopolitical risk premiums typically dissipate quickly.

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