Oil Market Prices Longer Supply Disruption Amid Middle East Tensions
The oil market is pricing in a longer supply disruption as tensions escalate in the Middle East. The US diesel crack has hit a record high of $102.20, driven by refinery attacks, Russian export bans, and low inventories. U.S. distillate stocks have fallen to 107.1 million barrels, the lowest level since early August 1996.
Refinery output is not enough to offset the decline in inventory, leaving the market worried about fuel supply. The ceasefire in the region has ended, and tanker traffic through the Strait of Hormuz remains in single digits. Iran has shifted to a fully offensive military posture, and the Houthis have launched missiles at vessels in the Red Sea.
The market is pricing what it costs to move every barrel around the problem, rather than expecting a near-term reopening. The US will not extend the current arrangement, leaving the oil market on high alert for further disruptions.