Despite recent positive pronouncements from US President Donald Trump, the Straight of Hormuz remains closed to shipping traffic and could stay that way for an indefinite amount of time.
The team at UBS has recently issued a research note on the impact of the closure on oil prices and has picked an Australian oil major as its preferred stock in the sector.
I'll get to that shortly.
Firstly, let's look at what they're saying about oil prices.
Image source: Getty Images
Price trend is higher
UBS said:
We raise near term oil prices reflecting the extended closure of the Strait of Hormuz and assume that transit remains severely reduced until the end of July at which point we expect a gradual resumption of flows with 90% of lost supply back within 6 months.
The broker has lifted its third-quarter Brent Crude oil price forecast by US$20 per barrel to US$105, its fourth-quarter forecast by US$10 to US$90, and its 2027 forecast by US$5 to US$85.
They added:
As inventories edge closer to critical levels over the coming 2 months, we anticipate oil prices may briefly exceed $120/bbl. Despite lifting oil, we trim LNG prices over 2H26 (2027+ unchanged) recognising global gas markets have been supported by weaker demand, fuel switching & additional US supply all helping mitigate the loss of ~17% of Qatari supply. Despite this, we see LNG price risk skewed to the upside as demand to refill low gas storage levels in Europe suggests tightness may persist over the next 6-9 months.
UBS said the timing of a resolution to the Straight of Hormuz situation remains the key uncertainty for oil markets and added, "we expect Brent Crude to trade within the $80 to $150/bbl range depending on scenarios''.
Which ASX energy company is best positioned?
Among Australian energy companies, UBS has picked Santos Ltd (ASX: STO) as its preferred pick in the sector.
They said:
STO is trading at an implied oil price of $67/bbl offering investors inexpensive leverage to the upside risk in near term oil prices. While our upside oil price scenario sees Brent at $135/bbl over 2H26 & $90/bbl in 2027, even our downside price scenario (Brent at $90/bbl in 3Q26, $80/bbl in 4Q26 and $75/bbl in 2027) implies STO is undervalued at the current price.
UBS has a price target of $8.60 on Santos shares compared to $7.96 currently.
The broker is neutral on Woodside Energy Group Ltd (ASX: WDS) with a price target of $30.40, and sell-rated on Beach Energy Ltd (ASX: BPT).
