Brent oil rises above $90! High oil prices are roaring again
During the first phase of the U.S.-Iran war, global oil markets managed to survive an extreme supply crunch. However, with fighting now renewed, the risk of a further surge in oil prices is growing at a time when supply buffers are dangerously exhausted. Market data shows that the price of global benchmark Brent crude oil rose by about 2.45% during the Asian session on Monday, with the latest trading around US$90.26 per barrel - this is the first time that Brent oil has risen above the US$90 mark in more than a month. The breakthrough of this important integer mark has undoubtedly made oil prices once again one of the focuses of concern for investors in the global market.
During the first phase of the U.S.-Iran war, global oil markets managed to survive an extreme supply crunch. However, with fighting now renewed, the risk of a further surge in oil prices is growing at a time when supply buffers are dangerously exhausted. Market data shows that the price of global benchmark Brent crude oil rose by about 2.45% during the Asian session on Monday, with the latest trading around US$90.26 per barrel - this is the first time that Brent oil has risen above the US$90 mark in more than a month. The breakthrough of this important integer mark has undoubtedly made oil prices once again one of the focuses of concern for investors in the global market. When the Strait of Hormuz was first closed in March, many in the industry feared an energy crisis was looming. Fortunately, the release of global emergency oil reserves at that time, the secretive inflow of supplies from some Persian Gulf countries, and China’s surprising ability to curb imports bought the world enough time to avoid the most tragic situation. By the time the U.S. and Iran signed a memorandum of understanding for a peace deal in June, market supply conditions were better than many had feared in the early days of the war. A subsequent surge in exports from the Middle East even created a glut in Asia, prompting some countries to make plans to restock inventories as crude prices plummeted. Now, however, traders are warning that the supply crisis is returning and could be more severe - especially for refined products. Many market participants said that if the confrontation between the United States and Iran continues to escalate and the Strait of Hormuz, the chokepoint, is once again effectively closed; and if Ukraine's continued bombing of Russian refineries triggers an unprecedented chain reaction, severely damaging Russia's fuel exports - then the few inventory "shock absorbers" left in the global supply chain will be unable to curb the crazy out-of-control international oil prices. “If the current situation lasts longer and the Strait of Hormuz is blocked, then we are bound to find ourselves in a difficult situation again,” Birol, the head of the International Energy Agency, said in an interview last week. Currently, the energy market is flashing various warning signs. In addition to the price of Brent oil rising above the US$90 mark today, the price of diesel purchased by American truckers and farmers has returned to above US$5 per gallon last week. Natural gas prices have also remained high, making it difficult for Europe to fully replenish inventories before winter. As conflicts in the Middle East intensify, European natural gas prices have risen for the third consecutive week last week. These price movements could undo U.S. President Donald Trump's pledge to lower the cost of living and force policymakers around the world, from the Federal Reserve to the Bank of England, to consider raising interest rates earlier to prevent further increases in inflation. In the past few days, top trading giants, oil refiners and hedge fund bosses from Europe and Asia have pointed their fingers at several fatal weaknesses exposed in the current market structure: First of all, global oil inventories are shrinking at an accelerating rate; while the supply of core fuels such as gasoline and diesel is extremely tight; at the same time, the market strongly questions whether governments really have the "hole card" to further squeeze their remaining emergency strategic reserves once a crisis strikes. According to data from the Paris-based International Energy Agency, between March and May alone, global observable oil inventories evaporated by 360 million barrels, equivalent to 3.9 million barrels being eaten away every day. Although inventories showed a weak rebound of 21 million barrels in June, it undoubtedly appears to be a drop in the bucket in comparison. During this period, the United States played a key "rescue" role in hedging the supply gap in the Persian Gulf by increasing production and exports at full capacity. However, the cost is equally heavy - U.S. crude oil inventories have now collapsed to historical freezing points since 1984. What is even more critical is that the existing crude oil reserves at the key U.S. commercial storage and transportation hub in Cushing, Oklahoma, are approaching the so-called "tank bottom" - the minimum limit that must be adhered to to maintain the normal operation of oil pipelines. J.P. Morgan’s analysis report pointedly pointed out: The world’s existing oil inventories have actually fallen to an all-time low (excluding China), which means that there is “no room for error” in the current world energy map.
It is worth noting that as passage through the Strait of Hormuz is once again blocked, hedge funds are currently betting heavily on the rise of Brent crude oil at the fastest speed in nearly a decade. Weekly data on futures and options from Intercontinental Exchange showed that fund managers increased their net long positions in the global benchmark oil by 75,996 lots to 357,154 lots in the week ended July 14. This is the largest increase since December 2016. The refined oil market is more severe Compared with crude oil, the situation in the refined oil market is even more severe. Traders said this was due to refineries in the Middle East and Asia reducing operating rates to cope with disruptions in crude supply from the Strait of Hormuz. Data from the U.S. Energy Information Administration hit a sore spot in the United States: U.S. gasoline inventories have fallen to the lowest level since the same period in 2012; and reserves of middle distillates (such as diesel), the lifeblood of logistics freight and agricultural machinery, are also well below the average level of the past five years. Russia, the world's second-largest exporter of diesel after the United States, is banning diesel exports overseas as a wave of Ukrainian attacks on its refineries creates domestic supply shortages, further exacerbating tensions in the diesel market. Although Europe was lucky enough to escape the ultimate nightmare of widespread flight grounding - according to data collected from various terminal operators by Insights Global, a third-party agency, in the core shipping hub of Amsterdam-Rotterdam-Antwerp, aviation kerosene stocks in independent storage have barely stabilized at low levels after plummeting by 40% since the beginning of the US-Iran war. But even so, the data is still hovering near the six-year low set last month. "Supply in the refined products market is tighter than in the crude oil market," said Christopher Haynes, global crude oil analyst at consulting firm Energy Aspects Ltd. If a conflict between the United States and Iran blocks shipping in the Strait of Hormuz again, energy consumers will further deplete their inventory reserves. Overall, the world still has 200 million barrels of emergency reserves that have not yet been released, according to Alex Kavouris, regional head of analysis at consulting firm FGE NexantECA. He said the market could still cope as long as the latest supply disruptions in the Strait of Hormuz were not too long-lasting and severe. However, Birol, director of the International Energy Agency, also said that although the world still has tools available to fill the supply gap, "but these tools are not inexhaustible."
It is worth noting that as passage through the Strait of Hormuz is once again blocked, hedge funds are currently betting heavily on the rise of Brent crude oil at the fastest speed in nearly a decade. Weekly data on futures and options from Intercontinental Exchange showed that fund managers increased their net long positions in the global benchmark oil by 75,996 lots to 357,154 lots in the week ended July 14. This is the largest increase since December 2016. The refined oil market is more severe Compared with crude oil, the situation in the refined oil market is even more severe. Traders said this was due to refineries in the Middle East and Asia reducing operating rates to cope with disruptions in crude supply from the Strait of Hormuz. Data from the U.S. Energy Information Administration hit a sore spot in the United States: U.S. gasoline inventories have fallen to the lowest level since the same period in 2012; and reserves of middle distillates (such as diesel), the lifeblood of logistics freight and agricultural machinery, are also well below the average level of the past five years. Russia, the world's second-largest exporter of diesel after the United States, is banning diesel exports overseas as a wave of Ukrainian attacks on its refineries creates domestic supply shortages, further exacerbating tensions in the diesel market. Although Europe was lucky enough to escape the ultimate nightmare of widespread flight grounding - according to data collected from various terminal operators by Insights Global, a third-party agency, in the core shipping hub of Amsterdam-Rotterdam-Antwerp, aviation kerosene stocks in independent storage have barely stabilized at low levels after plummeting by 40% since the beginning of the US-Iran war. But even so, the data is still hovering near the six-year low set last month. "Supply in the refined products market is tighter than in the crude oil market," said Christopher Haynes, global crude oil analyst at consulting firm Energy Aspects Ltd. If a conflict between the United States and Iran blocks shipping in the Strait of Hormuz again, energy consumers will further deplete their inventory reserves. Overall, the world still has 200 million barrels of emergency reserves that have not yet been released, according to Alex Kavouris, regional head of analysis at consulting firm FGE NexantECA. He said the market could still cope as long as the latest supply disruptions in the Strait of Hormuz were not too long-lasting and severe. However, Birol, director of the International Energy Agency, also said that although the world still has tools available to fill the supply gap, "but these tools are not inexhaustible."