Energy Crisis Worsens Despite Crude Oil Price Recovery
Crédit Agricole's latest analysis paints a grim picture of the energy market. Despite crude oil prices recovering to around $82.65, the bank argues that the energy crisis is worse now than it was in Q2. The key reason for this assessment is not just the price of crude oil itself but also the state of inventories and fuel cracks elsewhere in the energy complex.
According to Crédit Agricole, stocks of crude, gas, and distillates have been drawn down, while extremely high gasoline and diesel cracks signal a much tighter refined-products market than the crude benchmark alone suggests. This situation is not just about oil prices but also about the overall state of the energy system.
The recent improvement in shipping through the Strait of Hormuz has provided some relief, with 10 commodity vessels passing through on Wednesday, up from eight on Tuesday. However, this increase still falls short of the ten-day average of 15 vessels. Moreover, a tanker was struck by an unidentified projectile in the Strait, underscoring how fragile the improvement remains.
The disconnect between crude oil prices and the state of the energy system is a concern for Crédit Agricole. The bank notes that US and Indian refiners have benefited from exceptionally high margins due to disruptions to Middle Eastern and Russian supply, while US refineries have been running at unusually intense rates. This has helped explain why crude can trade in the low $80s despite the wider energy system feeling much tighter.
The next move for oil prices depends less on whether crude is trading at $82 or $85 today and more on whether inventories can stop falling before shipping and refining normalize. A durable Hormuz corridor would remove a large part of the scarcity premium, while continued disruption could leave the market vulnerable to another abrupt repricing.