Higher Floor

Brent closed at $118.35 in late March, at the peak of an 11.2 million barrels-per-day disruption, the largest in oil history. By July 6, it settled at $71.57, below where it was when the conflict started. In 2022, Russia's invasion of Ukraine removed a tenth of that volume and held Brent above $120 for three months, and above $100 for six.

Our new paper, Higher Floor, works through both halves of that comparison. The first half explains why the surge this year didn't hold: the market entered the war oversupplied on paper, bypass pipelines and dark tankers cut the real physical loss below the headline figure, and the shortage that did materialize showed up in refining margins and grade spreads rather than in Brent or WTI.

The second half argues that the round trip also revealed the new higher floor for oil going forward, but events don't support a higher sustainable ceiling. Three buffers that used to produce a lower downside (upstream investment, OPEC+ spare capacity, and commercial and strategic inventories) are thinner than they have been in years. We build the case for a durable floor near $70, $10 to $15 above the prior cycle floor, and lay out what that range means for underwriting energy equities between that floor and the ceiling that keeps forming slightly above $100.

Furthermore, we argue that this is what equity investors should want. A tight range of $70 to $100 is the best-case scenario for equity investors, not oil spiking to $100+.

An appendix takes one of the harder questions oil investors are currently dealing with directly: is the US-Iran standoff a new structural issue rather than a temporary diplomatic issue, and what a persistent, intermittent Hormuz disruption does to routing and refining exposure that a clean peace or a clean war would not.

Full paper attached.