Analys
Brent near USD 100 again(!)… SPR headlines cannot replace Hormuz flows
Brent crude is trading higher overnight, up roughly USD 4.5/bl from yesterday’s close. That said, prices were at one point up nearly USD 8/bl during the night before easing back this morning. Brent is currently hovering around USD 98/bl.
Analyst Commodities, SEB
This week has been extraordinarily volatile. We have seen intraday highs at USD 119.5/bl and intraday lows at USD 81.16/bl: all within roughly 38 hours. Every headline is being parsed for signs of escalation or de-escalation, and price action reflects exactly that.
The latest political headlines do little to calm the market. President Trump told Axios on Wednesday that the war with Iran will end “soon” because there is “practically nothing left to target.” On the surface, that sounds like an attempt to signal that the campaign is nearing its end.
Yet, the rest of the reporting points in the opposite direction. According to the same article, neither US nor Israeli officials have received any internal guidance on when military operations are expected to stop. Israeli Defense Minister Israel Katz said the war will continue “without any time limit” for as long as necessary to achieve its objectives. In parallel, both US and Israeli officials are reportedly preparing for at least two more weeks of strikes inside Iran.
That is a major mismatch. Trump is talking as if the campaign is close to completion, while those involved operationally appear to be preparing for something much more prolonged. For the oil market, that alone is enough to keep prices elevated. Even if the White House wants to calm expectations, the underlying signal is still that this may not be over anytime soon.
The “at least two more weeks of strikes” headline matters when you put the numbers into context. We have already had roughly 11-12 days of conflict. Add another 14 days, and we are suddenly looking at around 25 days in total. Apply that to roughly 20 million bl/d of flows through the Strait of Hormuz, and you are talking about something close to 500 million barrels of disrupted supply to global markets.
That is where the 400-million-barrel SPR release headline needs to be understood properly. Yes, 400 million barrels sounds huge. But the key issue is not the total volume (it is the daily release rate). The maximum sustainable release rate is roughly 2 million barrels per day, meaning a 400-million-barrel release would take around 200 days to fully hit the market.
So even though the headline number looks impressive, the short-term offset is limited. If a major disruption removes 15-18 million bl/d from the market, roughly the scale tied to Hormuz flows, then a 2 million bl/d emergency release barely scratches the surface.
i.e., SPR releases are likely more to signal and calm market psychology than replacing lost supply.
There has also been some confusion around the US reserve-release headlines. The 172 million barrels referenced in some reports are not additional barrels on top of the 400 million already announced, they are part of the same broader release package.
Our base view remains that Trump will want this war to end. Oil prices and the approaching midterm elections will push him in that direction. But the much harder question is what it would take for Iran to “reopen” Hormuz fully and safely afterwards. Compensation for rebuilding damaged infrastructure? Guarantees against renewed attacks? Some broader political or security arrangement? That remains completely unclear.
Another important point is that two more weeks of strikes also mean two more weeks of risk for lasting damage to oil infrastructure. Even if the conflict eventually de-escalates, the market may still have to deal with damaged loading facilities, terminals, pipelines or shipping routes. That is part of what makes this more serious than a simple headline-driven spike.
At the same time, some of the “lost” supply may in practice be delayed rather than permanently destroyed. Oil has been built up inside the Gulf during the disruption, and some of those barrels would start flowing back to global markets once the Gulf reopens. So, part of the current shock could later reverse as trapped supply is released.
Overnight headlines underline just how nervous the market remains. Trump said he wants to refill the SPR quickly, Oman reportedly began evacuating ships from Mina al Fahal, and Brent briefly moved back above USD 100/bl as disruption hit a key Omani port. In addition, China has reportedly told refiners to suspend all refined fuel export cargoes: another sign that governments are shifting into supply-security mode.
Another thing often overlooked in these situations is hoarding behavior. If governments or market participants start stockpiling aggressively, the effect can make the situation worse. That is exactly what happened during the 1970s oil crisis, when precautionary buying added roughly 2-3 million bl/d of extra demand on top of the underlying supply shock. That kind of behavior can amplify price spikes very quickly. China has already been building inventories over the past year, and there are signs that other large importers such as Japan and South Korea are also securing as many barrels as they can.
Finally, on naval escorts: we have highlighted before that even if they are introduced, flows would still likely remain well below normal. Lloyd’s estimates that naval escorts could in theory protect enough ships to keep some traffic moving, but that this would require more naval assets than are currently available. Even in that best-case scenario, less than 10% of normal traffic may get through, and realistically, even that may prove optimistic.
In short, inventory releases may help at the margin, but they are nowhere near large enough to offset a major physical disruption. The real issue is not the headline volume of reserves; it is whether physical flows through Hormuz can resume in a credible and sustained way.
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Yesterday’s US DOE report was somewhat mixed, but with the key point being that commercial crude inventories rose by 3.8 m bl on the week to 443.1 m bl. Even after the build, crude inventories still sit around 2% below the five-year average for this time of year.
On the products side, the picture was more constructive. Gasoline inventories fell 3.7 m bl, while distillates declined 1.3 m bl. Gasoline stocks remain about 5% above the five-year average, but distillates are now roughly 2% below. Total commercial petroleum inventories fell by 2.0 m bl on the week, which softens the bearish read from the crude build alone.
Refinery activity picked up further, with crude runs increasing by 328 k bl/d to 16.2 m bl/d, while utilisation rose to 90.8%. Product output also moved higher, with gasoline production at 9.9 m bl/d and distillate production at 4.9 m bl/d.
On the demand side, the four-week averages remain reasonably supportive. Total products supplied are running 1.9% above the same period last year, with gasoline up 0.8%, distillates up 0.4%, and jet fuel showing the strongest growth at +7.3% YoY.
i.e., the crude build is the headline, but the broader inventory picture is less bearish than that suggests. Product draws continue, total commercial inventories fell, and crude stocks remain slightly below normal for the time of year.
Market is starting to take US/Iran headlines with a pinch of salt. Brent crude rose $2.8/b yesterday to an official close of $112.1/b. But after that it traded as low as $108.05/b before ending late night at around $109.7/b. Through the day it traded in a range of $106.87 – 112.72/b amid a flurry of news or rumors from Iran and the US. ”US temporary sanctions during negotiations” (falls alarm). ”We will bomb Iran” (not anyhow),… etc. While the market is still fluctuating to this kind of news flow, it is starting to take such headlines with a pinch of salt.
We’ll see. Maybe, maybe not. The Brent M1 contract is trading at $110.2/b this morning which very close to the average ticks through yesterday of $110.4/b.
Trump with bearish, verbal intervention whenever Brent trades above $110/b it seems. What seems to be a pattern is that Trump states something like ”very good negotiations going on with Iran”, ”New leaders in Iran are great,..”, ”Great progress in negotiations,…”, ”Deal in sight,..” etc whenever the Brent M1 contract trades above $110/b. An effort to cool the market. These hot air verbal interventions from Trump used to have a heavy bearish impact on prices, but they now seems to have less and less effect unless they are backed by reality.
As far as we can see there has been no real progress in the negotiations between the US and Iran with both sides still standing by their previous demands.
Iran is getting stronger while the cease fire lasts making a return to war for Trump yet harder. Iran is naturally in constant preparation for a return to war given Trump’s steady threats of bombing Iran again. Iran is naturally doing what ever is possible to prepare for a return to war. And every day the cease fire lasts it is better prepared. This naturally makes it more and more difficult and dangerous for the US to return to warring activity versus Iran as the consequences for energy infrastructure in the Persian Gulf will be more and more severe the longer the cease fire lasts. Israel seems to see it this way as well. That the war is not won and that current frozen state of a cease fire gives Iran opportunity to rebuild military and politically.
Global inventories are drawing down day by day. How much? In the meantime the Strait of Hormuz stays closed. There is varying measures and estimates of how much global inventories are drawing down. Our rough estimate, back of the envelope, is that global inventories are drawing down by at least some 10 mb/d or about 300 mb/d in a balance between loss of supply versus demand destruction. Other estimates we see are a monthly draw of 250-270 mb/d. The IEA only ’measured’ a draw in global observable stocks of 117 mb in April with oil on water rising 53 mb while on shore stocks fell 170 mb. But global stocks are hard to measure with large invisible, unmeasured stocks. As such a back of the envelope approach may be better.
Oil products is what the world is consuming. Oil product prices likely to rise while product stocks fall. Strategic Petroleum Reserves (SPR) are predominantly crude oil. Discharging oil from OECD SPR stocks, a sharp reduction in Chinese crude imports and a reduction in global refinery throughput of 6-7 mb/d has helped to keep crude oil markets satisfactorily supplied. But global inventories are drawing down none the less. And oil products is really what the world is consuming. So if global refinery throughput stays subdued, then demand will eventually have to match the supply of oil products. The likely path forward this summer is a steady draw down in jet fuel, diesel and gasoline. Higher prices for these. Then, if possible, higher refinery throughput and higher usage of crude in response to very profitable refinery margins. And lastly sharper draw in crude stocks and higher prices for these. But some 6 mb/d of oil products used to be exported through the Strait of Hormuz. And it may not be so easy to ramp up refinery activity across the world to compensate. Especially as Ukraine continues to damage Russian refineries as well as Russian crude production and export facilities.
Watch oil product stocks and prices as well as Brent calendar 2027. What to watch for this summer is thus oil product inventories falling and oil product premiums to crude rising. Another measure to watch is the Brent crude 2027 contract as it rises steadily day by day as the Strait of Hormuz stays closed and global oil inventories decline. The latter is close to the highest level since the start of the war and keeps rising.
The Brent M1 contract and the Brent 2027 prices and current price of jet fuel in Europe (ARA). All in USD/b
Our back of the envelope calculation of the global shortage created by the closure of the Strait of Hormuz. Note that 3.5 mb/d of discharge from SPR is also a draw. Note also that ’Forced demand loss’ of 2.5 mb/d is probably temporary and will fall back towards zero as logistics are sorted out leaving ’Price demand loss’ to do the job of balancing the market. Thus a shortfall of at least 9 mb/d created by the closure. More if SPR discharge is included and more if Forced demand loss recedes.
Brent is climbing higher. Front-month is at USD 106.3/bl this morning, close to a weekly high and a USD 9/bl jump from Mondays open. This is the move we flagged as a risk earlier in the week: the market shifting from ”a deal is around the corner” to ”this is going to take longer than we thought”.
Analyst Commodities, SEB
During April, rest-of-year Brent remained remarkably stable around USD 90/bl. A stability which rested on one single assumption: the SoH reopens around 1 May. That assumption is now slowly falling apart.
As we highlighted yesterday: every week of delay beyond 1 May adds (theoretically) ish USD 5/bl to the rest-of-year average, as global inventories draw 100 million barrels per week. i.e., a mid-May reopening implies rest-of-year Brent closer to USD 100/bl, and anything pushing into June or July takes us meaningfully higher.
What’s changed in the last 48 hours:
#1: The US military has formally warned that clearing suspected sea mines from SoH could take up to six months. That is a completely different timescale from what the financial market is pricing. Even a political deal tomorrow does not immediately reopen the strait.
#2: Trump has shifted his tone from urgency to ”strategic patience”. In yesterday’s press conference: ”Don’t rush me… I want a great deal.” The market is reading this as a president no longer feeling pressured by timelines, with the naval blockade running in the background.
#3: So far, the military activity is escalating, not de-escalating. Axios reports Iran is laying more mines in SoH. The US 3rd carrier strike group (USS George H.W. Bush) is arriving with two countermine vessels. Trump yesterday ordered the US Navy to destroy any Iranian boats caught laying mines. While CNN reports that the Pentagon is actively drawing up plans to strike Iranian SoH capabilities and individual Iranian military leaders if the ceasefire collapses. i.e., NOT a attitude consistent with an imminent deal!
Spot crude and product prices eased off the early-April highs on a combination of system rerouting and deal optimism. Both now weakening. Goldman estimates April Gulf output is reduced by 14.5 mbl/d, or 57% of pre-war supply, a number that keeps getting worse the longer this drags on.
Demand-side adaptation is ongoing: S. Korea has cut its Middle East crude dependence from 69% to 56% by pulling more from the Americas and Africa, and Japan is kicking off a second round of SPR releases from 1 May. But SPRs are finite.
Ref. to the negotiations, we should not bet on speed. The current Iranian leadership is dominated by genuine hardliners willing to absorb economic pain and run the clock to extract concessions. That is not a setup for a rapid resolution. US/Israeli media briefings keep framing the delay as ”internal Iranian divisions”, the reality is more complicated and points toward weeks and months, not days.
Our point is that the complexity is large, and higher prices have only just started (given a scenario where the negotiations drag out in time). The market spent April leaning on the USD 90/bl rest-of-year assumption; that case is diminishing by the hour. If ”early May reopening” is replaced by ”June, July or later” over the next week or two, both crude and products have meaningful room to reprice higher from here. There is a high risk being short energy and betting on any immediate political resolution(!).
Down on Friday. Up on Monday. The Brent June crude oil contract traded down 5.1% last week to a close of $90.38/b. It reached a high of $103.87/b last Monday and a low of $86.09/b on Friday as Iran announced that the Strait of Hormuz was fully open for transit. That quickly changed over the weekend as the US upheld its blockade of Iranian oil exports while Iran naturally responded by closing the SoH again. The US blew a hole in the engine room of the Iranian ship TOUSKA and took custody of the ship on Sunday. Brent crude is up 5.6% this morning to $95.4/b.
The cease-fire is expiring tomorrow. The US has said it will send a delegation for a second round of negotiations in Islamabad in Pakistan. But Iran has for now rejected a second round of talks as it views US demands as unrealistic and excessive while the US is also blocking the Strait of Hormuz.
While Brent is up 5% this morning, the financial market is still very optimistic that progress will be made. That talks will continue and that the SoH will fully open by the start of May which is consistent with a rest-of-year average Brent crude oil price of around $90/b with the market now trading that balance at around $88/b.
Financial optimism vs. physical deterioration. We have a divergence where the financial market is trading negotiations, improvements and resolution while at the same time the physical market is deteriorating day by day. Physical oil flows remain constrained by disrupted flows, longer voyage times and elevated freight and insurance costs.
Financial markets are betting that a US/Iranian resolution will save us in time from violent shortages down the road. But every day that the SoH remains closed is bringing us closer to a potentially very painful point of shortages and much higher prices.
The US blockade is also a weapon of leverage against its European and Asian allies. When Iran closed the SoH it held the world economy as a hostage against the US. The US blockade of the SoH is of course blocking Iranian oil exports. But it is also an action of disruption directed towards Europe and Asia. The US has called for the rest of the world to engaged in the war with Iran: ”If you want oil from the Persian Gulf, then go and get it”. A risk is that the US plays brinkmanship with the global oil market directed towards its European and Asian allies and maybe even towards China to force them to engage and take part. Maybe unthinkable. But unthinkable has become the norm with Trump in the White House.
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Oil product price pain is set to rise as the Strait of Hormuz stays closed into summer
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