Trump Iran war speech points to even deeper oil supply disruption

President Donald Trump doubled down on the U.S. war against Iran, pushing oil prices higher on Thursday as traders braced for a longer conflict that would worsen an already deep disruption in global energy supplies.

The oil market was hoping Trump would present a clear exit strategy in his national address Wednesday night. Instead, the president said the war would continue for weeks and promised to hit the Islamic Republic “extremely hard.”

“The barrel math is getting increasingly grim as the conflict is expected to last through at least the end of April,” Ryan McKay, senior commodity strategist at TD Securities, said in a note to clients on Thursday.

McKay said about 1 billion barrels will be lost by the end of the month, including up to 600 million barrels of crude oil and about 350 million barrels of refined products such as jet fuel, diesel and gasoline. He said that there would be an additional loss of 450 million barrels every month that the war lasts.

Rapidan Energy projects a total net loss of 630 million barrels of oil and products through the end of June, accounting for redirected flows through pipelines, emergency stockpile releases and stock reductions.

US crude oil Following Trump’s statements, prices increased by more than 10% to over $110 per barrel. Brent pricesThe international benchmark rose over 6% to above $107.

Buyers of physical barrels of U.S. oil are currently prepared to pay a premium of about $120 in Houston, or about $5.50 based on the May futures contract, said independent oil analyst Tom Kloza of Kloza Advisors.

“The speech was a disaster,” John Kilduff, co-founder of Again Capital, told CNBC. He said that the market was rapidly priced due to the effect of the long war and the closure of the Strait of Hormuz.

US has no plans to open Hormuz

In his speech, Trump did not present a US plan to open the strait, a vital sea lane that Iran has effectively closed with its attacks on tankers. The Bosphorus connects the Persian Gulf to the global market. Before the war, about 20% of global supplies passed through the waterway.

In his speech, Trump said, “The United States imports almost no oil from the Strait of Hormuz and will not in the future. We do not need it. We do not need it and we do not need it.” he said.

The President said, “Countries of the world that receive oil through the Strait of Hormuz should pay attention to this passage.” “They must capture it and treasure it. They can do that easily. We will help, but they must take the lead in protecting the oil on which they are so desperately dependent.”

Trump threatened to bomb Iran’s power plants and send the country “back to the stone age.” He told countries affected by the closure of the Strait to buy oil from the USA

“I can’t believe the U.S. military didn’t start weakening Hormuz’s interdiction capabilities from day one,” Bob McNally, president of Rapidan Energy, told CNBC. “Just like you can’t imagine a parachutist jumping out of a plane without wearing his parachute.”

fuel shortage

Rystad Energy analyst Matthew Bernstein said oil prices were prevented from rising further by cutbacks at refineries, a pre-war oversupply and the release of emergency oil by more than 30 countries in the International Energy Agency.

The market is starting to price in the long-term impact of the war, Bernstein told CNBC.

“There will be no return to the pre-war status quo going forward,” the analyst said. “Prices will be supported by demand for new stockpiling even after the war is over, rising insurance and freight costs related to the Strait of Hormuz, and the broader geopolitical risk premium in the market.”

With the Strait still closed, oil stocks will begin to feel pressure. TD Securities’ McKay said oil stored on tankers will run low quickly and onshore stocks could fall to multi-year lows as early as early August.

“As market stock buffers erode, the physical tightness seen so far in Asia is starting to increase globally,” the strategist said. He said crude oil and product prices “will face increasing upward pressure in the coming weeks and months” until higher prices begin to dampen demand.

Shell CEO Wael Sawan warned in Houston last week that fuel shortages would continue worldwide, starting with jet fuel and continuing with diesel and eventually gasoline.

“It’s a ripple effect,” Sawan said March 24 at the CERAWeek by S&P Global energy conference. “Of course, we see South Asia taking this hit first. As we move into April, this shifts to Southeast Asia, Northeast Asia and then Europe.”

Gasoline and diesel prices

The U.S. is largely protected from shortages because of its strong domestic production, Natasha Kaneva, JPMorgan’s head of global commodities research, said in a March 26 note to clients. But the West Coast, especially California, could face supply disruptions through May because of its reliance on imports, Kaneva said.

Patrick De Haan, head of oil analysis at GasBuddy, said retail gasoline prices in the U.S. could rise to $4.25 to $4.45 per gallon in the next two weeks. social media post. Diesel prices can rise to $5.80 to $6.05 per gallon.

Record gas prices may not be far away, De Haan said. Pump prices reached an all-time high of $5.02 per gallon in June 2022 after Russia’s invasion of Ukraine shook global energy markets.

Kloza said the increase in diesel prices is the most serious problem right now. “This should cause significant inflation in the second quarter,” the analyst said.