Please read “The Oil Market Breaking Point” article.

In our write-up published on March 25, we outlined a range of scenarios and explained that the oil market’s breaking point would be mid-April. We are now past the breaking point.

From this moment forward, the 11 to 13 million b/d of supply outage will either show up in 1) crude storage draws, 2) product storage draws, or 3) demand destruction.

For those of you not familiar with the logistics or logic of this, let me bring you up to speed.

The oil market breaking point coincided with the last barrels from the Persian Gulf to the end user. Once those tankers offload the barrels onshore, the lack of offloading will start to drain onshore oil inventories. (For additional details on the onshore storage math, please see this write-up.)

At the moment, the global refinery outage is over ~5 million b/d, with ~3 million b/d concentrated in the Middle East. Asia and Europe are both reducing refinery throughput, but just because refineries throttle back doesn’t mean end-user demand is down.

The subsequent reduction in refinery throughput will lead to faster product storage draws, raising petroleum product prices. This cycle will then feed itself back into higher refining margins and, thus, higher refinery throughput.

This cycle will rinse and repeat for a few more weeks:

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Now speaking from my experience, what I witnessed this weekend came straight out of a horror film.

https://x.com/HFI_Research/status/2045718723282256215

Since the conflict began at the end of February, most tankers have chosen to do nothing and wait. There were theories that the Strait of Hormuz was closed due to a lack of insurance. I also shared that view in the early stages of the conflict, but as the events progressed, especially what transpired this weekend, I was shocked.

IRGC physically implemented the closure by threatening tankers with gunfire. We saw this visibly through tanker activity. This is the first time since we started tracking tanker activity that we saw tankers turn around in volume. In the past, we saw maybe 1 or 2 tankers do that, but not in the size it did this weekend.

To me, this signals that 1) IRGC is firmly in control of the Strait of Hormuz and 2) the conflict will need to get worse before it gets better. It is clear from the demands that the IRGC/Iran is making that the US would never agree. So the option is very narrow here, and the only way to solve this issue in the long run is to “solve” it if you understand what I’m saying. I fear the worst has yet to come, and I don’t say this lightly.

Continue reading at URL below:

https://www.hfir.com/p/wctw-the-oil-market-breaking-point-eab