Strait Of Hormuz Crisis Triggers Overnight Oil Spike

Oil prices are up 10% this morning, trading north of $100/barrel for the first time since 2022 and believe it or not the real story so far today is the amount prices have dropped from their overnight highs.

WTI reached a high of $119.48 overnight and Brent traded up to $119.50, marking close to 30% increases for both contracts before retreating to “only” trade up around 10%.

ULSD futures had a similar spike, coming within a few points of an 85 cent increase overnight, but giving back 53 cents to “only” trade up 32 going into the 8 O’clock hour.

RBOB gasoline futures continue to see the least volatility and saw 48 cent gains shrink to just 23 cents at the moment.

All that really matters for the moment is how quickly oil, products and LNG can start flowing through the Strait of Hormuz again at something close to full scale as there simply is no way to replace 20% of global capacity. On an average day there are around 150 ships that transit the strait and reports suggest only 2 ships took a run at it all weekend, both of which tried using a “Chinese owner” flag as cover.

The pullback this morning suggests that someone believes the U.S. energy secretary who suggested over the weekend that the Strait would be open for business in a matter of weeks not months. I expect the DOE will announce an SPR release sooner rather than later this week if the ships continue to be stuck.

Meanwhile Iraq and Kuwait have had to shut in large portions of their oil production because they’ve run out of capacity to store it and without the tankers moving they’ve got no place to go.

Bahrain has declared force majeure on shipments as its 400mb/day BAPCO refinery was struck by an Iranian attack again over the weekend.

China has banned refined product exports temporarily as a precaution, and perhaps as a bargaining chip with other nations as it’s believed the country could operate its refineries for more than a year without importing another drop of oil based on the reserves it’s been stockpiling.