Bank of America (BofA) is warning that oil prices could continue climbing into the winter if the United States and Iran fail to reach an agreement to reopen the Strait of Hormuz, with severe shortages already emerging in diesel, gasoline, and global natural gas markets.

"We've been expecting oil to be in the $70 to $80 a barrel range for Brent on the assumption that we were going to see some resolution," Francisco Blanch, Bank of America's head of commodities and derivatives research, told CNBC on Monday. "But if we don't, we're going to keep creeping higher into the winter."

The warning comes as negotiations over reopening Hormuz remain unresolved and tanker traffic through the world's most important oil chokepoint stays at a fraction of pre-war levels. The strait normally carries roughly 20% of global oil consumption, making it the single most critical maritime route for crude and refined products. Blanch said only around 5 to 10 ships per day are currently passing through the strait, compared with roughly 140 before the conflict. With some crude now being rerouted through Saudi Arabia and the UAE—both of which operate overland pipelines that bypass the strait, though at limited capacity relative to Hormuz's normal throughput—traffic would need to recover to approximately 80 to 100 ships per day just to stabilize energy markets.

"We have enough crude oil for now, but we have true shortages in diesel markets, gasoline markets and also global gas," Blanch said. "We have some serious shortfalls in end products in the energy markets right now."

Those shortages are showing up most dramatically in refining margins. Blanch said diesel crack spreads—the difference between diesel and crude prices—have surged to roughly $80–$85 per barrel, meaning the diesel differential alone now exceeds the price of WTI crude. The shortfall is especially acute heading into the Northern Hemisphere winter, when seasonal demand for heating oil and diesel typically peaks.

"That's kind of never happened before except for a few occasions," he said, adding that gasoline differentials are also extremely high and refining margins have reached record levels.

Inventories offer considerably less protection than during previous supply disruptions. "We don't have the inventories that we used to have," Blanch said, warning that failure to secure an agreement could trigger another escalation. Years of drawdowns, including releases from the U.S. Strategic Petroleum Reserve in recent years, have left buffer stocks thinner than during past disruptions.

Brent crude was trading at $86.12 per barrel Monday morning, up 3.08%, while WTI was near $80.72, up 3.25%.

Bank of America is also urging investors to adopt a more defensive posture as its bull-and-bear indicator climbs to 9.7, its highest level since 2021. Chief investment strategist Michael Hartnett has recommended reducing exposure to risk assets rather than adding to positions, writing that the bank remains in a "Retreat/Rotate not Reload" camp. U.S. equities remain near record highs, leaving investors heavily exposed if another surge in oil and fuel prices spills into inflation and the broader economy.

By Michael Kern for Oilprice.com