Oil: Hormuz traffic and policy risks – MUFG

MUFG's Derek Halpenny examines how uncertainty over Strait of Hormuz oil flows and tight US fuel inventories are shaping crude prices. Conflicting shipping estimates, shifting diplomatic signals and large drawdowns in distillate and gasoline stocks are keeping energy markets highly sensitive to changes in supply expectations.

Hormuz flows and inventories in focus

"Crude oil prices are lower as well with President Trump stating that the Strait of Hormuz has been cleared of mines although there is scepticism over whether that is true."

"So, might this be the start of a renewed bounce in energy prices? The answer will surely depend on the degree of traffic that is currently getting through the Strait of Hormuz. It’s difficult to know for sure but the oil price level suggests the traffic is higher than previously."

"US Energy Secretary Chris Wright claimed that the US army helped ship over 15mn barrels through Hormuz in a single day last week, with a 7-day average of more than 8mn barrels a day. Tracking data (2mn-6mn barrels per day) suggest that’s an exaggeration but untracked ships (with no transponders on) could be a credible reason for the difference. It is certainly reasonable to think the true number may lie between, which would still by notable."

"Oil prices seem to respond more to good news and fall in response than rise on the back of bad news. A New York Times article on Tuesday suggesting the US was considering returning diplomats to the Middle East, suggesting Washington does not expect a return to full-scale conflict helped drive prices lower but developments yesterday saw some, but not all, of that drop reverse."

"The Iran-Oman charging Strait of Hormuz deal was viewed as evidence of defiance by Iran that could draw a response from the US while the energy inventory data saw very large drawdowns of distillates and gasoline. The EIA stated that distillate inventories are now at their lowest level on record on a seasonal basis."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)