Signal Brief: Iran Update – 8th Mar 1800 CET – Cross-Market

Crude Signal Brief: Iran Update – 8th Mar 1800 CET – Cross-Market

• News over the weekend was mostly escalatory; more gains in flat prices, timespreads etc are due in early trading this week. $93/bbl Brent still looks cheap. But the reality is, while a 2-week SoH closure will be ultimately manageable, as we have been saying, expect weeks of supply chain issues thereafter. A 4+ week closure means essentially no reasonable ceiling for oil & product prices short-term. If things drag on that long, macro impacts/forced demand destruction will increasingly provide a drag.
• Critical infrastructure attacks continue; Iran and Israel were trading attacks on refineries (Tehran damage is severe) while desalination attacks are a nasty new development. Drones were intercepted over large Saudi oil fields. Reportedly (socials for now; take with caution) the US is considering plans to seize Kharg Island, which would be another escalation and put Iranian crude exports of 1.8-2.0 MBD out of action.
• UAE and Kuwait have followed Iraq (which has so far cut over 2.5 MBD of supply) in beginning forced well-head production cuts. Various refineries are also struggling with lack of offtake options (and due to lower runs, there will also be shortages of product within the AG itself). These are important developments and we need to consider re-start timelines as and when, but the main bottleneck to keep in mind remains Hormuz flow.
• MARAD is reportedly lifting its formal “Avoid Navigation” warning but the Strait remains closed to all but Iran-linked or Chinese-owned vessels with ship-owners/flag states the main factor in determining whether ships sail. Presumably it will only take the occasional tanker attack over the coming days to keep this the status quo.
• Saudi is pushing, reportedly, some 2.0-2.5 MBD crude through Yanbu already, but clearly this is a relative drop in the bucket compared to normal Hormuz flow. Whether even more can be done through the port this month is untested/unknown. Meanwhile it seems Fujairah is actually operational following fires last week – particularly important for Murban crude. 
• In Japan – which is heavily exposed to AG crude – refiners are asking for SPR. The max global rate of SPR draw (plus commercial draw) seems now particularly important but hard to quantify. The US can do a massive 4+ MBD of SPR draw. The US and IEA will mandate SPR draw eventually but perhaps wait for the $100/b mark. Even if SPR + commercial draw can take us most of the way to balancing out the Hormuz gap temporarily, prices would still reflect the nature of emergency.
• Oil nationalism has emerged; China and others are curbing fuel exports. In China’s case this takes off 400-600 KBD of refined products to the Asian market. Expect this reaction to spread, with talk now rising about US’s options on export bans and other means of price suppression. Imagine WTI/Brent, HOGO, TA Arb spreads in that (disastrous ex-US) scenario.
• South Korea is considering reinstating an oil price cap for the first time in 30 years. Other Asian countries (Bangladesh, Myanmar, Philippines) are already enacting conservation measures.

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