Oil Price Analysis: The Market Is Wrong About the Fundamentals
Key Points:
- The Strait of Hormuz closed again Friday - a ceasefire deal announced by Trump unwound within four hours after Israel bombed Beirut and Iran shut the Straits. The net position is unchanged: closed.
- 401 million barrels are now shut in - exceeding the entire G7 SPR release on a daily basis. Physical Brent was trading $50 above front-month futures as real buyers went OTC for delivery barrels.
- European airlines are already cutting flights and grounding aircraft. IATA warns European cancellations could begin by end of May. The jet fuel crisis is no longer a forward risk - it is happening now.
I’m normally not interested in rehashing the enormous news flow on the week gone, unless there is significant price impact. This week was that exception. We started off the week with failing talks in Islamabad, where Vance took the lead with Iran. Indirect talks (both parties in separate rooms) really only found they are at a Structural deadlock on their sets of goals. Trump deployed a US blockade of the blockade on the outside of The Straits to stop all traffic completely. This served a purpose to spread the pain to China and India, who were still receiving Hormuz exports. The Iranians instantly countered with ‘The Yemini’ option. That the Houthis would subsequently attack ships entering the Bab el-Mandeb straits, destined for loading at Yanbu port. This directly puts another 5mbpd of supply at risk. Currently, it is still rumoured that the Houthis are attacking in this area, not a fact. There is no scheduled or agreed second round of talks.