We're well past the day 100 mark of the Iran War and the wider Middle East crisis that's been upending global oil markets since February 28. As the conflict between the US and Iran escalated, and disruption in the Strait of Hormuz took hold - not only did it impact crude markets, but dragged LNG, LPG, fertilizer, petroleum distillates, helium, and more, into the turmoil.
However, its the poster futures contract of the global commodities business - oil - that most seem to focus on with a fifth of the world's supplies held up on the wrong side of the Strait of Hormuz. Despite the US and Iran having moved from an all out conflict to sporadic skirmishes, and a US Navy blockade of Iranian ports since early April, oil futures continue to trade on news signals.
Ups and downs, swings and roundabouts in the futures market have sent Brent down 16% on the month, down 12% on a 3-month basis but up 46% year-till-date. That's after latest escalation and de-escalation, as U.S. President Donald Trump declared on Thursday that it will all be over soon (again!) or Iran will pay dearly, and so it goes, pushing Brent below $90 per barrel intraday.
We spoke about the complexities energy producers and consumers alike are facing, and the potential for demand destruction. As such, to the Oilholic this crisis appears rather under-priced.
With Asian economies in a bind over reliable crude oil and products supplies, and the Europeans sweating it out over natural gas - were the disruption in the Strait of Hormuz to spill over well into Q3, the inflationary impact of the war will be felt way more acutely. More importantly, even if lasting peace were to arrive in the region tomorrow, it would still take at least until Q1 2027 for the markets to normalise.
And yes, demand destruction of oil and natural gas in favour of not just renewable energy but also coal, is a very real and pretty visible prospect. Of course, a conclusion to the conflict would come as a massive release that would likely take the market into surplus in 2027. But we are still some way off from there. Should you wish to watch the programme, you can view the full episode here. But that's all for the moment folks! More market musings to follow soon. Keep reading, keep it here, keep it 'crude'!
