Hormuz Volatility Ahead: Oil Prices Set for Higher Baseline

Oil prices continue to fluctuate in response to developments surrounding the Strait of Hormuz, despite ongoing structural supply deficits and market uncertainty. The recent transit of approximately 100 million barrels out of the Arabian Gulf has provided some stability, but critical contingency buffers have largely been exhausted. The market faces tightening balances in the coming months, leading to heightened volatility as oil prices establish a higher baseline.

The tanker market has been recovering from a period of staggered rates, with new vessel supply shrinking while oil demand remained elevated. However, a recent rapid increase in freight rates has led to significant new vessel ordering, resulting in an orderbook above average levels. While the near-term supply/demand misbalance is small, a meaningful negative balance is expected to develop longer term, potentially leading to a downcycle.