Takeover
Renewed conflict shuts Hormuz with The US to 'takeover', but do we need to price in higher?
In this report: We look at Several elements of pricing in the market and how China can turn this entire book on its head.
Last week. Brent +4.46% ($3.05) Open $68.68 High $76.08 Low $67.82 Close $71.51
Articles
U.S. and Iran trade strikes after IRGC declares Strait of Hormuz “closed”
Traffic through Strait of Hormuz halves days after US strikes in blow to global economy
Ships pass through Strait of Hormuz in secret as US and Iran trade strikes
US pain at the pump worsens after more US-Iran fighting lifts oil prices
From Hormuz to the pump: Why oil price shocks hit consumers differently
China’s Oil Imports Poised to Recover as Stockpiling Returns
Why the real oil shock may only begin when China returns
Ukraine Hits All 11 of Russia’s Largest Oil Refineries in Long-Range Drone Campaign
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There are 4 key factors in the oil landscape currently that need to be understood. It is my view that price action is on a knife edge at the moment. Does this renewed closure of the straight actually impact price the way we think it should….Up? Or is this new closure going to actually have far less impact than the first, if any? Is it that simple? This is not even accounting for how hard Russia is getting hit at the moment from Ukraine. Read below for a Russian brief.
Here they are and here is what we have to balance. Welcome to oil!
The MOU is dead and The SOH is closed again with a US blockade. Traffic is reduced to 52% WoW-source: Kplr.
Easing of supply is real across the global network, with local MENA region remedies, OECD strategic releases, but we are also seeing large builds of stores in the South Atlantic market from Brazil and West Africa. These add to the overall SOH relief.
Price reaction is limited and controlled. The reaction to a new closure has been bid up but limited in scale. We will need a new catalyst and extended closure time, to reaccelerate up. The US blockade that comes into force on Monday has found some strong volumes of buying. However, this was met with limited upside as of 5pm GMT.
Tightness continues to haunt the landscape with strategic reserves masking the shit show. Inventories thus continue to be propped up. The mini glut we currently see, is largely down to this and two other factors. 1. Chinas withdrawal from the import scene with Chinese refining maintenance runs a small factor. 2. A wave of relief ships laden with oil exited The SOH over the last 3 weeks. More in China section below.
WE ARE 69.5MB OFF THE SPR FLOOR
China
China quietly cut its crude imports to 5mb/d since Feb, close to half of what it was buying before. The barrels that then left Hormuz heading east started to pile up at refiners who were not taking them.
Shandong teapots ran at 50.5% in late May, a nine-year low; the national average was 66.3%; May processing fell 9.1% year over year. The reasons are expensive crude, crushed refining margins, weak fuel demand, the fuel-export ban - and, importantly, EV adoption accelerating once oil pushed above $100
-read on for full China picture, Russian read, MEG pricing impacts, The COT analysis and trade charts and analysis.
