Oil Market Volatility Continues Amid US-Iran Conflict

The ongoing conflict between the US and Iran has led to extreme volatility in the oil market. Despite physical supplies facing disruptions, global refineries are operating at record margins. The market is closely watching for signs of de-escalation or further conflict escalation.

The current situation remains tense, with the US and Iran engaging in mutual attacks. President Donald Trump announced 'very strong' strikes on Wednesday evening, increasing the risk premium on commodities and dampening positive sentiment. WTI oil has retraced half of its recent downward move to test a key resistance level around $85.

The Strait of Hormuz is crucial for global oil supplies, but despite restrictions, it's estimated that up to 13 million barrels of oil may be flowing from the Persian Gulf. This limits the deficit, which could have fallen to as low as 2 million barrels per day. The refining sector has seen a historical boom due to high fuel prices and record-high crack spreads.

Global refining giants are operating at maximum capacity, with Shell reporting refinery utilization at an unprecedented level of 102%. However, increased activity has led to a rapid drainage of commercial oil inventories in the US. Producers are feeling the effects of the war, with Saudi Arabia's GDP dropping by 4.8% year-on-year due to the collapse in the oil sector.