WTI Caught Between Hormuz Risk and Diesel Export Ban Speculation

WTI crude oil prices are caught between two opposing forces: the risk of disruption to global supply due to tensions in the Strait of Hormuz, and speculation about a potential US diesel export ban.

The recent widening of the Brent-WTI spread is largely driven by these divergent factors. While Brent has risen by less than $2 since September 18, WTI has fallen around $7, resulting in a sharp increase in the premium for Brent over WTI.

The narrative behind the diesel export ban is that if US refiners are restricted from exporting diesel, they will have fewer markets to sell into, leading to weaker demand for WTI relative to Brent. The US highway diesel price has surged to a record $6.53 a gallon, up 42.6% since July 10.

US President Donald Trump's scheduled announcement at 2:00pm ET on Monday is an obvious event risk that could determine whether the recent pressure on WTI relative to Brent extends or starts to unwind. In the short term, technical signals are uncertain due to the high degree of volatility and uncertainty in the market.

In the medium and longer term, a resolution to the conflict in the Strait of Hormuz would likely create immediate downside risk for both WTI and Brent if it leads to an increase in global supply.