Escalations over the past week have damaged the media narrative that has built up over the past few weeks, that transit through the Strait was practically back to normal, and all Gulf production would be rapidly back onstream and available in the market.
That’s what Standard Chartered Bank Energy Research Head Emily Ashford told Rigzone, adding that “we have seen direct targeting of energy infrastructure and tankers once more, and the Houthis have more actively entered into the conflict, attacking Saudi Arabia”.
“The U.S. Administration also announced the return of its Iranian blockade and floated the idea of charging a 20 percent transit for safe passage through the Strait,” Ashford highlighted.
The Standard Chartered Bank Energy Research Head did outline, however, that the bank thinks “something else is at play, which has so far prevented prices escalating much higher, and that is developments between Russia and Ukraine”.
“Advancements in Ukrainian drone technology means it has been able to attack and damage Russian refineries, pumping stations and other energy logistics, alongside tankers operating the Sea of Azov, and pipelines,” Ashford pointed out.
“These attacks are having visible domestic consequences, reducing refinery throughput, reducing crude demand. That is also why the disconnect between crude and refined products is wide, particularly for middle distillates,” Ashford said.
In a market analysis sent to Rigzone on Tuesday, Samer Hasn, Senior Market Analyst at XS.com, highlighted that crude oil prices were continuing their rise today, and noted that the “sharp” increase “comes amid the rapid escalation witnessed in the Middle East in recent hours and days, proving that the hypothesis the market tends to cling to of the war’s near end is premature”.
“The escalation disrupts global energy supplies, with a near halt in ship navigation in the Strait of Hormuz, and heightens the risk of further escalation, including targeting oil production and refining infrastructure in the region, which could make the damage structural rather than temporary,” Hasn said in the analysis.
“Yesterday’s scene was hysterical and full of details as we saw widespread targeting of the Iranian mainland and islands and targeting of American bases at several points in the region, in addition to targeting ships and oil tankers, and these events are still recurring until the time of writing,” Hasn highlighted.
“To make matters worse, we saw an unexpected and sudden return of escalation between Saudi Arabia and the Houthis in Yemen,” he pointed out.
Hasn noted in the analysis that, “with this stormy series of events, we must calmly rearrange our hypotheses”, adding that he believes “we are now in a round of negotiating under fire, following the failure at the table after the signing of the recent memorandum of understanding”.
The senior market analyst said “the major obstacle lay in reaching an understanding regarding the implementation of the fifth article of the signed memorandum of understanding, which concerns the management of the Strait of Hormuz”.
He added, however, “it is not unlikely, in the midst of today’s massive wave of escalation, that we witness a sudden announcement of a return to the ceasefire, but this time through a broader exchanged understanding, backed by clearer and more precise wording regarding the management of the strait, which would leave no room for interpretation by either party as they please”.
In another market analysis sent to Rigzone on Tuesday, Waleed Said, Technical Analyst at GivTrade, noted that both Brent and WTI “exploded almost 10 percent higher in the previous session”.
“The rally is being driven by a powerful geopolitical risk premium around the Strait of Hormuz, where military action, restrictions on Iranian shipping and the threat of higher transit costs are raising fears of delayed cargoes, soaring insurance premiums and tighter global supply,” Said pointed out.
“Oil could climb further if traffic slows or exports are disrupted, but the move could unravel quickly if shipping continues normally and diplomatic pressure eases,” Said warned.
In the analysis, Said projected that the next major test is U.S. inflation.
“Hotter CPI data could initially fuel oil’s inflation trade, but it may later backfire by strengthening the dollar, reviving rate-hike fears and weakening demand,” Said outlined.
“Softer inflation could support growth and consumption, although it may also strip away part of crude’s inflation premium,” Said noted.
“For now, Hormuz remains the spark, but today’s CPI data will decide whether this is a temporary geopolitical spike or the start of a much larger supply-and-inflation shock,” the technical analyst concluded.
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