Hormuz Oil Flow Rebounds, But Diesel Costs Keep Crude Prices Elevated

Oil prices surged by 4.4% on Thursday to $102.31 a barrel, despite a recovery in tanker traffic through the Strait of Hormuz. The global crude-futures benchmark rose as refining bottlenecks and shipping disruptions kept fuel costs elevated.

Morgan Stanley analysts estimate that Middle East crude exports have recently been just 7% below prewar levels, thanks to US forces degrading Iran's ability to attack tankers.

However, J.P. Morgan reported that exports of refined products such as gasoline, diesel, and jet fuel from the region remain around 40% below prewar levels. This has led to a significant increase in shipping costs, with supertankers ferrying crude from the Middle East to China recently costing $35 a barrel, up from less than $7 before the war began.

The surge in diesel prices is particularly notable, with futures recently fetching roughly double the price of crude. This has pushed bond yields to multi-decade highs and has led to widespread concern among energy executives. A recent Dallas Fed survey showed that 48% of energy executives believe it will take at least a year for the spread between diesel prices and crude costs to normalize.