Oil Prices Expose Gap Between Geopolitical Risk and Physical Supply

The recent surge in oil prices has been fueled by geopolitical tensions in the Strait of Hormuz, but a closer look at the data reveals a disconnect between the physical supply and market price.

West Texas Intermediate (WTI) traded at $87.96 on Tuesday, up 2.57% from Monday's close, while Brent crude was at $92.04, holding above $90 for a second consecutive session. This year, oil prices have risen by as much as 50%.

The escalation of tensions came after two oil tankers were struck by projectiles on Monday night, one Saudi and one South Korean-owned. A Saudi very large crude carrier was reportedly hit or stopped while transiting the US-facilitated southern Hormuz corridor, with Iran claiming a ship had hit mines. The US Central Command denied any vessel had been mined.

Kpler counted only five commodity transits through Hormuz on Monday against a 10-day average of nearly 14, with zero liquid tankers among them. However, traders estimate that 6 million to 8 million barrels per day are still moving through the waterway, mainly from other Gulf producers.

The data suggests that while oil prices are discounting an acute supply shock, US commercial crude inventories have actually built up over the past three weeks, reaching a cumulative total of 21.9 million barrels. This is 1% above the five-year average for this time of year.