"TACO" ebbs, "NACHO" enters the stage? Wall Street no longer betting on Hormuz sudden opening, Citigroup warns oil prices could surge to $120 again.

Wall Street financial giant Citigroup released a research report indicating that despite factors such as inventory consumption, the release of strategic oil reserves, decreased imports by Asian countries due to high oil prices, relative weakening of demand, and signs of downgrading in the phase of conflicting forces, this has helped cushion the impact of energy costs. However, if long-term peace negotiations between the United States and Iran continue to be challenging, leading to a prolonged blockade and control of the Strait of Hormuz, the international oil price benchmark - Brent crude oil price may further rise from the recent significant decline near $100 and even reach a new phase high. It is understood that as the crisis in the Strait of Hormuz cannot be quickly resolved, Wall Street traders seem to be switching from the "TACO" trading strategy (betting on further positive progress in US-Iran talks or Trump always backing down) to the "NACHO" trading strategy - assuming that a long-term blockade of the strait is inevitable (Not A Chance Hormuz Opens). While the Brent crude oil price has fallen from its wartime high of $126 per barrel at the end of April, it remains above $100, nearly 50% higher than before the conflict escalated. Since President Trump initiated a global trade war in April 2025, the "TACO" strategy (Trump Always Chickens Out) has been widely adopted by traders. Whenever Trump issues new, more aggressive tariff threats or other major threats that trigger a market crash, global stock and bond market investors bet that he will eventually back down or that the actual policy will significantly weaken his verbal threats. Furthermore, they choose to buy heavily at the right downturn time, betting that the stock market will rebound significantly soon after. However, more and more traders are now leaning towards the "NACHO" trading theme. Citigroup warned that the upside risk of oil prices has not been resolved. The group's strategists believe that the interruption of the Strait of Hormuz will significantly ease before the end of May, but have also stated that the difficulty of reaching an agreement between the US and Iran has increased the risk of a significant increase in oil prices in the near term. The Wall Street giant maintained its forecast that Brent oil prices over the next 0 to 3 months will reach a high forecast point of $120 per barrel. Meanwhile, they predict that the average price of Brent crude oil in the second quarter will be $110 per barrel, followed by a drop to $95 per barrel in the third quarter, and a further drop to $80 per barrel in the fourth quarter. Citigroup cited ship tracking data stating that China's oil imports in April and May could decrease by around 2.4 million barrels per day, from an average of about 11.6 million barrels per day in 2025 to about 9.2 million barrels per day, which has also eased supply pressures on the global oil market. Nevertheless, the strategists at Citigroup stated, "We continue to believe that the crude oil futures market has underestimated the potential duration of the blockade of the Strait of Hormuz and the end-of-tail risks in the market." Citigroup also mentioned that even if the Strait of Hormuz is reopened in an orderly manner, global oil supply in the short to medium term will still be very limited. It may be quite a distance away from returning to the transportation levels in the Middle East before the geopolitical conflict in late February. During this period, global purchasing of oil from Middle Eastern countries or hoarding oil due to inventory panic could significantly push up oil prices. The overall oil production in the Middle East has been significantly reduced due to the conflict with Iran, and the logic behind this round of production cuts and skyrocketing oil prices has expanded beyond just "transportation obstruction in the Strait of Hormuz." Factors such as "production cuts + shipping vessel capacity obstruction + infrastructure damage from missile strikes" have contributed to why prominent Wall Street strategists like Ed Yardeni, the founder of investment advisory firm Yardeni Research, have recently emphasized that in an environment where the global economy is facing high financing costs and geopolitical shocks, energy stocks are transitioning from cyclical trading to a strategic overweight position within investment portfolios. Even if the strait is reopened, it will take several months for oil flow, infrastructure repair, fleet deployment, refinery ramp-up, and inventory replenishment to be completed. Fatih Birol, head of the International Energy Agency, even stated that a significant portion of oil and gas production disrupted by war may take up to two years to recover to pre-war levels. In other words, a ceasefire may only compress the front-end panic premium but cannot quickly eliminate the supply gap and inventory vacuum in the backend. The "NACHO" trading theme is quickly sweeping across Wall Street! Long-term blockade of the Strait of Hormuz reshapes oil prices, inflation, and interest rate expectations. As the crisis in the Strait of Hormuz cannot be quickly resolved, Wall Street traders are transitioning from "TACO" trading (betting on short-term intervention or Trump policy retreat) to "NACHO" trading. While factors such as inventory consumption, release of strategic oil reserves, and reduced Chinese imports have somewhat alleviated oil price pressure, the stalemate in US-Iran negotiations and the distant prospect of the Strait of Hormuz reopening have increased the short-term upside risk of oil prices, providing macroeconomic logic support for "NACHO" trading. Despite the fall of Brent crude oil prices from a wartime high of $126 per barrel at the end of April, they remain above $100, about 50% higher than before the conflict escalated. The shipping insurance market provides a more direct risk pricing signal: war risk premiums have reached as high as about 2.5% of vessel value, compared to about 0.1% before the conflict, currently eight times higher than pre-war levels. The market is gradually accepting the "normalization" of a blocked strait, and not only the oil market but also the shipping insurance and interest rate markets have incorporated continued blockade into their pricing. The interest rate market's reflection of prolonged energy impact is most notable: short-term interest rates are repriced, and the trend of flattening yield curves is significant, indicating investor concerns about sustained high oil prices and inflation risks. The "NACHO" trading theme not only affects short-term speculative behavior but also conveys macrostructural signals: the impact of the Strait of Hormuz crisis on the global energy supply chain, inflation expectations, and financial asset pricing may exceed market expectations. Investors must adjust their strategies to incorporate sustained high oil prices and supply chain risks into their medium to long-term investment decision-making framework. In the macro and commodities framework, Wall Street veteran Ed Yardeni is choosing to be bullish on energy stocks at this time and judging that "even if the war ends, oil prices will not return to pre-conflict levels." Essentially, he is defining this round of oil price shocks as structural supply damage rather than a one-time geopolitical risk premium. What may truly determine the trend of oil prices is not just whether there is a temporary ceasefire, but rather the "post-war repricing" of the entire energy chain, including the Strait of Hormuz, shipping insurance, oil tanker capacity, refinery repairs, and inventory restocking. While the US government has extended the ceasefire, the blockade of Iranian ports is still ongoing, and energy trade markets are not facing a linear logic of "ceasefire agreement = supply restoration." Once the center of oil prices is permanently elevated, the global path to lower inflation will become stickier, the room for interest rate cuts by the Federal Reserve and other central banks will be compressed, and the valuation of risk assets will continue to be constrained. In contrast, the energy sector can both take advantage of the improved profitability from high oil prices and hedge against the risks of war resumption, continued shipping disruptions, and declining inventories in the backend. Therefore, Yardeni's notion of "leveraging the optimism from the ceasefire to increase holdings in energy" fundamentally bet on a longer, more difficult-to-reverse supply restructuring cycle, rather than betting on short-term news headlines.