Analysis: Oil Nears $100 Bbl on Strait of Hormuz Squeeze


   
   VIENNA (DTN) -- Crude and oil product prices have soared to multi-year highs 
this week as tanker traffic through the Strait of Hormuz remained at a virtual 
standstill. The sudden loss of about a fifth of global oil supply has crude 
futures breaking one technical resistance point after the other, with the Brent 
benchmark breaching $90 bbl. Prices are quickly approaching the $100 bbl mark 
and may even surge past it, bringing severe consequences to consumers, refiners 
and fuel retailers.

   Brent last traded above $100 bbl in the first six months of Russia's war on 
Ukraine. Gasoline futures soared by more than 50% during that time, with 
front-month RBOB futures breaching the $3 gallon mark and even $4. The price 
move in gasoline came mainly on the back of higher crude prices, as Russia was 
not a significant exporter of the automotive fuel, producing less than 1 
million bpd mostly for domestic demand.

   Qatar's Energy Minister forecasted that crude prices could soar to $150 bbl 
in the next two to three weeks as more producers in the Middle East are forced 
to shut oil fields and some countries have already completely exhausted their 
storage capacity. A price-shock of this magnitude may force the U.S. and other 
IEA members to release oil from their strategic reserves. The consequences of 
the war to the refined fuels market may be felt for far longer than the closure 
of the Strait of Hormuz will last.

   This time, the impact of the supply outage stemming from an escalating Iran 
war for fuel prices go far beyond the price pressure from crude oil prices. 
Main oil producers in the region, particularly Saudi Arabia and the United Arab 
Emirates, have in recent years diverted an ever-larger share of their crude 
output to domestic refineries serving the export market. The Middle East has 
become a key diesel supply source for Europe since the EU shunned Russian 
refined products in response to the country's invasion of Ukraine. Some 5 
million bpd of refined fuels supply were affected by the closure of the Strait 
of Hormuz.

   Additional price pressure on fuels will come from lower refining activity. 
Refiners outside the Persian Gulf were already impacted by the sudden cessation 
of crude deliveries. The 300,000-bpd capacity Mangalore refinery on Wednesday 
warned that it may have to suspend product exports if crude deliveries are 
delayed. The Indian state-run refinery receives most of its crude oil from the 
Middle East. Indian refiners have over the past four years waned themselves off 
their dependence on oil from the Persian Gulf, opting instead for heavily 
discounted Russian crude. In the past few months, however, they pivoted back to 
supply from Saudi Arabia, Iraq and others under the threat of U.S. sanctions.

   The soaring shortage of energy worldwide forced the Trump administration to 
announce this week its first reprieve on sanctions imposed on Moscow, allowing 
Indian refiners to access Russian oil already at sea.

   Outside of India, China has advised major refineries to suspend product 
exports.  Refiners in Indonesia, Japan and Thailand have also started to cut 
runs.

   In the U.S., sticky inflation had the Federal Reserve take a careful 
approach to monetary easing. The inflationary pressure stemming from a 
prolonged oil crisis would add additional strain to the economy and keep the 
central bank from lowering interest rates.

   Gasoline demand was already forecasted to edge lower this year. Consumers 
may forego non-vital trips as prices at the pump spike. Jet fuel demand, 
forecast to rise 2% year-on-year, may also be negatively affected as jet fuel 
prices rushed past three-year highs.




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