As someone who routinely mocks permabullish clickbait oil forecasts, I want to be exceptionally clear:
Crude WILL go to $200/bbl, en route higher, unless traffic through the Strait resumes.
Not clickbait, but rather brutal physics and necessary economic incentives.
Plenty of folks saying that the Iran war pushing oil prices >$100 would solve itself by killing demand
BUT the current supply loss is larger than the peak of COVID demand destruction in Spring 2020 when we locked down and airports emptied
At what price would YOU lockdown again?
"well, Biden.."
Shush, with crude >$120 and diesel >$200 in mid-2022 following Russia's invasion of Ukraine, that was also a good time to use itโand importantly the war wasn't Biden's choice.
TRUMP CHOSE THIS, and he did so on this timeline knowing the current state of the SPR
It's truly insane that the Trump team has tied themselves in so many stupid knots re: the SPR that they're reportedly considering truly insane thingsโe.g., Treasury directly intervening in futs marketโbefore they'd consider using the Reserve for the PRECISE REASON IT WAS CREATED
Good morning and happy Friday, oil watchers
Crude price getting spiky again, up $6/bbl from earlier this morning and with Brent knocking on the door of $90 again.
Highest price in ~2 years and rising quick.
I'm gonna say no, Trump can't take credit for lower oil prices.
My @thedispatchmedia.bsky.social column below
thedispatch.com/newsletter/d...
Paradox of the current oil market:
Most of the folks who appreciate just how bullish the US-Israel-Iran war is for oil markets think itโs SO WILDLY BULLISH that they canโt imagine this lasting much longer.
๐จ๐ฆ Believing that half my fellow citizens have "bad" morality and ethics couldn't be a more foreign concept to me.
It's much easier to bridge divides and arrive at reasonable compromise when you start from the premise that *most* people are, in fact, acting in good faith.
Glad to see that reflected
The 7 shipping attacks over the past few days recorded by the UK Maritime Trade Operations (UKMTO) the Gulf and Strait of Hormuz
About to jump on CBC's The Current at ~8am ET to talk all about Iran, the throttling of traffic through the Strait of Hormuz, and why it's impossible to overstate the consumer cost implications of this stretching any longer.
hey, hey, I know this one
I wrote about why the US banning refined product exports is a bad, self-defeating idea back when the Biden Admin was reportedly considering it in 2022.
That piece here:
www.commoditycontext.com/p/us-fuel-ex...
Trump deciding to ban US oil and/or refined product exports would be a very bad idea, and I don't think he'll do it.
But China announcing that it's doing just that certainly up the odds.
Itโs choppy, but crudeโs price trend is steadily and sharply higher.
As it should be. Oil market gets a few bucks tighter every day this persists.
All crude prices are obviously going to rise on the Iran crisis, but the bulk of crude flowing out of the Strait of Hormuz is medium-to-heavy sour barrels, which means their loss is a big gain for other competing heavier sour grades like WCS.
๐จ๐ฆ๐ข๏ธ Western Canadian Select differentials have tightened aggressively on Iran risk after being forced weaker by the return of Venezuelan heavy barrels.
Rally in the main Hardisty, AB diff (left) is being driven by USGC/global quality factors (WCS diff at Houston, TX on right)
Love this FT graphic on Strait of Hormuz flow.
(Note: likely understates flow because this will not capture tankers who are making the run with their transponders turned offโand, tbh, if I was making the run I wouldn't want my transponder on)
Brent crude up above $84/bbl this morning, taking its next step higher after Monday's initial ~$8/bbl rally.
Every day this lasts we take another step higher.
"We are now actively speed-running the single greatest threat to global oil supplies: the combined risk of (1) some kind of closure of the Strait of Hormuz and (2) Iran launching attacks against upstream production assets across the Gulf."
In terms of severity:
Strait of Hormuz closure (temporary, reversable)
<
Strait closure-forced upstream shut-ins (can be reversed, but gets tricky)
<
Iranian attacks on GCC infrastructure/facilities (everything can be repaired, but attacks can require far longer work)
๐ Shut-ins starting.
Reports indicate they throttled field output by ~700 kbpd; that alone is ~17% of Iraqi crude production.
Moving fast here.
I donโt think demand destruction and recession risk would act quickly or forcefully enough to โcapโ an oil price rally above $100/bbl.
Any sustained Strait disruption would take ~20% of global supply off the market, demand ainโt closing the gap that quickly unless weโre $200+
๐จ NEW POST ๐จ
๐ฆ๐๐ฟ๐ฎ๐ถ๐ ๐๐ผ ๐๐ต๐ฒ ๐ฃ๐ผ๐ถ๐ป๐ ๐ผ๐ป ๐๐ฟ๐ฎ๐ป
Quick thoughts on what I'm watching, what people are saying, and how to think about the different challenges the oil market is facing as it stares down the mother of all tail risks.
www.commoditycontext.com/p/strait-to-...
๐จ NEW POST ๐จ
๐ฆ๐๐ฟ๐ฎ๐ถ๐ ๐๐ผ ๐๐ต๐ฒ ๐ฃ๐ผ๐ถ๐ป๐ ๐ผ๐ป ๐๐ฟ๐ฎ๐ป
Quick thoughts on what I'm watching, what people are saying, and how to think about the different challenges the oil market is facing as it stares down the mother of all tail risks.
www.commoditycontext.com/p/strait-to-...
Thereโs the Brent crude chart.
BIG pop to $82/bbl, pretty rapid pullback to ~$79. Still a very hefty $6 gain.
Main reason it wasnโt a bigger jump was that we went into the weekend positioned *extremely* bullishโmany of the people who would be buying on Iran risk already bought.
*BRENT OIL SURGES 13% TO $82 A BARREL AT OPEN AFTER IRAN STRIKES
En route to Calgary to talk about the really interesting and tangible impacts of newly available Venezuelan supply on USGC heavy crude pricing and Canadaโs export markets.
Feel like Iโll be spending a lot of time talking about intangible Iranian tail risks and Brent pricing.
<guy who thinks every military exchange over the past half-decade would spiral into World War III>
โWhat, youโre surprised? What did you expect? Of course this is going to get so much worse.โ
