On, Off, On Again

This week we look at why the Iran war keeps flipping on and off, who's paying for it, and why the US isn't as insulated as it looks. Numbers are at the bottom.

A ceasefire in April. Collapsed in July. Talks in September. Rejected.

Last week, crude through Hormuz got back to roughly prewar levels. The same week, five merchant vessels were struck in the Strait.

On. Off. On again.

We've said this many times before: an MOU is not a treaty. We don't see this resolving cleanly.

Crude flowing isn't the same as fuel flowing, either. Refined products through Hormuz are running at 677,000 barrels a day, against 3.6 million before the war.

So who feels it?

Asia and Europe.

China's refiners suspended fuel exports for October to protect supply at home. Europe is pulling diesel out of its emergency stocks as part of a 100 million barrel G7 release.

When the biggest buyers can't get Gulf barrels, they get them somewhere else.

Including here.

The US is energy independent on net, meaning we export more than we import. But we still import crude every day. Washington even threatened a diesel export ban before the G7 deal came together.

Meanwhile the SPR is at its lowest level since 1982. We flagged that one in The Shortcut Is Gone.

So say the US magically refilled the SPR tomorrow.

Does price go back to normal?

We don't think so.

Oil is a global commodity, so strain anywhere shows up in the price everywhere.

And the strain is big. Saudi Aramco's CEO said today that nearly 3 billion barrels of supply have been lost since February, and that rebuilding inventories could take up to two years after Hormuz reopens.

He sells oil for a living, so weigh that accordingly. The direction matches the EIA data, though.

We're just comfortable with our projections using $70 oil.

In the next week or two, we'll dig into the ‘independent on net’ piece: what we import, why we import it, and what that means when the rest of the world is short.

Your Oil and Gas team,

Crown Forge Energy