Citi's Layton: Strait of Hormuz has the potential for large oil disruption from Iran-Israel conflict

Geopolitical Risk & Oil Market Impact - The market is pricing in a significant geopolitical risk premium of approximately $10-12 per barrel, representing about 15-20% of the total crude oil price [3][6] - The Strait of Hormuz is identified as a key chokepoint, and any disruption there could lead to a potentially large oil supply disruption [2][3] - While Iran's oil production isn't currently targeted, its continued flow and Saudi Arabia's potential to compensate are crucial factors [4] Oil Market Dynamics & Outlook - OPEC+ moving to return barrels is a key factor influencing market sentiment and limiting fresh long positions [4] - Many analysts previously forecasted lower prices ($40-50), but the firm's 12-month Brent forecast remains at $65, indicating a medium-to-long term bearish outlook from current prices [4] - Short-term bullish catalysts exist, but investors require a positive medium-to-long term outlook to sustain long positions [4] Oil Consumption & Economic Impact - Oil consumption as a share of GDP has decreased, particularly in the US due to its shift towards a service-based economy [6] - Despite the decline in oil intensity, the US still directly consumed approximately $650 billion worth of oil last year, highlighting the significant economic impact of price fluctuations [7] - A 10% price move in oil translates to a $60 billion impact on US oil consumption [7]