Iran Holds Key to Global Oil Prices Amid Strait of Hormuz Tensions
Oil prices have not reached $150 per barrel despite the ongoing tensions in the Strait of Hormuz, according to Bjarne Schieldrop, head of commodity analysis at Skandinaviska Enskilda Banken (SEB). The current supply of crude oil on the market remains sufficient, preventing a significant drop in oil inventories and keeping Brent crude prices from rising further.
Schieldrop explained that if the Strait of Hormuz were completely closed, the market could lose approximately 14 million barrels of oil per day. However, several factors are offsetting this shortfall: around 5 million barrels per day are still passing through Hormuz; oil exports via Yanbu have increased by 3 million barrels per day; China has reduced oil imports by 3 million barrels per day; OECD countries are releasing approximately 1 million barrels per day from their Strategic Petroleum Reserves (SPR); Russia has reduced its refining activity by approximately 1.5 million barrels per day; and the Abu Dhabi pipeline has increased its output by approximately 0.6 million barrels per day.
As a result, the supply-demand balance remains in surplus by about 100,000 barrels per day. Schieldrop warned that if these two sources of compensation were blocked, the market would quickly fall into a state of severe shortage, which is currently controlled by Iran through its control over the Strait of Hormuz and the Bab el-Mandeb Strait.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, noted that oil prices are being pulled in two directions: geopolitical supply risks driving prices up, but weak global demand limiting the upward momentum. According to him, the pricing mechanism is simple: the more signs there are that Hormuz will be shut down for longer, the higher the spot oil price will rise; conversely, if there is credible diplomatic progress or shipping is restored, the risk premium will quickly disappear.
Aslam also highlighted the weakening household consumption momentum in the US, which could dampen expectations that the Fed will continue to tighten monetary policy. He noted that no major US economic data points were strong enough to directly alter expectations for oil prices, but Chinese data on industrial production, fixed asset investment, retail sales, and unemployment rates are noteworthy because China remains a major contributor to global oil demand.