President Donald Trump has doubled down on the US war against Iran, sending oil prices higher on Thursday as traders prepare for a prolonged conflict that would worsen already deep disruptions in global energy supplies.
The oil market was expecting Trump to offer a clear exit strategy during his national address on Wednesday night. Instead, the president said the war would continue for weeks and vowed to hit the Islamic Republic “very hard.”
“With the struggle now expected to last through at least April, the barrel math has become increasingly dire,” Ryan Mackey, senior commodities strategist at TD Securities, said in a note to clients Thursday.
Mackey said about 1 billion barrels would be lost by the end of the month, including up to 600 million barrels of crude oil and about 350 million barrels of refined products such as jet fuel, diesel and gasoline. He said there would be an additional combined loss of 450 million barrels per month if the war dragged on.
Brent crude futures in the last five days
Rapidan Energy estimates a total net loss of 630 million barrels of oil and products by the end of June, when redirected flows through pipelines, emergency stockpile releases and inventory drawdowns are accounted for.
American crude oil Prices have risen more than 10% to $110 a barrel following Trump’s comments. Brent pricesThe international benchmark jumped more than 6% to top $107.
Buyers of a physical barrel of U.S. oil are currently willing to pay about $120 in Houston, or a premium of about $5.50 over a May futures contract, said Tom Kloza, an independent oil analyst at Kloza Advisors.
“The speech was a disaster,” John Kilduff, founding partner of Again Capital, told CNBC. The market is increasingly pricing in the impact of the prolonged war and closure of the Strait of Hormuz, he said.
No US plan to open Hormuz
Trump did not offer any US plans during his speech to open the strait, a vital sea route that Iran has effectively closed with its attacks on tankers. The strait connects the Persian Gulf to the global market. Before the war about 20% of global supplies passed through waterways.
Trump said in his speech, “The United States imports almost no oil through the Strait of Hormuz and will not in the future. We don’t need it. We don’t need it and we don’t need it.”
The President said, “The countries of the world that receive oil through the Strait of Hormuz should take care of that route.” “They must hold it and cherish it. They can do that easily. We will be helpful, but they must take the lead in protecting the oil on which they are so dependent.”
Trump threatened to bomb Iran’s power plants and send the country “back to the Stone Age.” He asked the countries affected by the closure of the strait to buy oil from America
“I can’t believe that the U.S. military didn’t begin reducing Hormuz interdiction capabilities from day one,” Bob McNally, president of Rapidan Energy, told CNBC. “Just like you can’t imagine a parachutist diving from a plane without a parachute.”
fuel shortage
Oil prices have been kept from rising even higher due to refinery run cuts, a pre-war supply glut and the release of emergency oil by more than 30 countries at the International Energy Agency, said Matthew Bernstein, an analyst at Rystad Energy.
Bernstein told CNBC that the long-term effects of the war are causing prices to rise in the market.
“Going forward, there will be no going back to pre-war conditions,” the analyst said. “New demand for storage, increased insurance and freight costs associated with the Strait of Hormuz and the broader geopolitical risk premium in the market will continue to support prices even after the war ends.”
With the strait still closed, pressure on oil reserves will begin to be felt. TD Securities’ MacKay said oil stored on tankers will be depleted rapidly and onshore stockpiles could fall to multi-year lows by early August.
“As inventory buffers in the market are depleted, the physical tightness seen so far in Asia is beginning to extend globally,” the strategist said. He said crude oil and product prices “will face increasing pressure in the coming weeks and months” until higher prices begin to dampen demand.
Shell CEO Vel Savan warned in Houston last week that there would be worldwide fuel shortages, starting with jet fuel, followed by diesel and finally gasoline.
“It’s a ripple effect. We see that certainly South Asia will be the first to bear the brunt of it. By April it will be more widespread in Southeast Asia, Northeast Asia and then Europe,” Sawan said at the CERAWeek by S&P Global Energy conference on March 24.
Gas and diesel prices
Natasha Kanaeva, head of global commodity research at JPMorgan, said in a note to clients on March 26 that the US has largely been spared from the shortage due to its strong domestic production. But the West Coast, particularly California, could face supply disruptions through May due to its reliance on imports, Caneva said.
U.S. retail gasoline prices could rise to $4.25 to $4.45 a gallon over the next two weeks at the current pace, said Patrick de Haan, head of petroleum analysis at GasBuddy. social media post. Diesel prices could reach $5.80 to $6.05 per gallon.
Record gas prices may not go away, de Haan said. Prices at the pump hit an all-time high of $5.02 a gallon in June 2022 after Russia’s invasion of Ukraine roiled global energy markets.
Kloza said, the increase in diesel prices is the most serious issue at the moment. “This should lead to significant inflation in the second quarter,” the analyst said.
