Trump says prices will come back down. OK when?
Oil Bottleneck Threatens the Global Economy
The Wall Street Journal reports Strait of Hormuz: The Oil Bottleneck Threatening the Global Economy
As of Wednesday, day five of the war on Iran, several thousand ships were stuck inside and outside the Persian Gulf, trapping roughly a fifth of the oil and liquefied natural gas the world consumes each day. The blockage is cascading through the region’s industry as storage tanks fill up with oil that can’t set sail, forcing producers to slash output.
The problem is most acute in Iraq, the world’s fifth-biggest producer. Output has more than halved, oil officials in the country said, with cutbacks at the southern Rumaila and West Qurna 2 fields.
The cost of chartering tankers to transport oil from the Persian Gulf has rocketed and now equates to 20% of the price of a crude cargo, compared with 3% in normal times, according to Argus Media analysts.
Cutbacks prompted by dwindling storage compound disruptions from Iranian attacks on regional energy infrastructure, which prompted Qatar’s national producer to stop making liquefied natural gas.
In another sign of U.S. concern, the Navy sent a message to tankers Wednesday morning saying they could ask for assistance if they wanted to sail through the Strait, said shipping executives with tankers stuck in the Gulf.
Traders questioned whether the U.S. would be willing to put expensive naval ships in harm’s way. They are currently positioned outside the Gulf, distanced from Iranian missiles. Even if U.S. ships conducted escorts, the market wouldn’t return to normal, possibly functioning in daylight hours only.
“Practically, it is very difficult for any navy to escort ships through that narrow strait,” said Ellis Morley, specialist in cargo and commodities at Howden, an insurance broker. “That horseshoe shape of the Strait keeps ships in the most dangerous area for a long time.”
Saudi Arabia has abundant storage capacity, as does the U.A.E. Elsewhere, however, tanks are filling up.
By Tuesday, Iraq had enough space to store the volume of oil it typically exports through the Strait every three days, according to JPMorgan Chase analyst Natasha Kaneva. Unless the Strait opens, 3.3 million barrels of daily production in the region could be lost by early next week, she calculates—roughly enough to supply Japan.
“If Hormuz remains effectively closed, supply losses would accelerate,” Kaneva said.
22 Percent of Global Supply Is Offline
Cost of Chartering a Tanker
See the Strait of Hormuz Shutting Down
Traffic in the Strait of Hormuz grinds to a halt.
Iran Conflict May Push Up Oil Prices for Americans
The Washington Post reports Trump Concedes Iran Conflict May Push Up Oil Prices for Americans
President Donald Trump acknowledged for the first time on Tuesday the economic toll for Americans of his assault on Iran, saying that oil prices were likely to spike as a result of the fighting in the Persian Gulf but insisting they would eventually dip.
“So if we have a little high oil prices for a little while, but as soon as this ends, those prices are going to drop, I believe, lower than even before,” Trump told reporters in an Oval Office appearance alongside German Chancellor Friedrich Merz, after a reporter asked both leaders how worried they were about the rising prices of oil and gas.
Merz offered a more sober assessment of the war’s impact, saying that “this is of course damaging our economies. This is true for the oil prices, and this is true for the gas prices as well. So that’s the reason why we all hope that this war will come to an end as soon as possible.”
Disruption Risks Aren’t Over
Business Insider reports Trump’s pledge to keep oil flowing has calmed markets, but Wall Street experts say disruption risks aren’t over
Trump ordered the United States Development Finance Corporation to offer political risk insurance to guarantee the financial security of maritime trade in the Persian Gulf, in a Truth Social post made ahead of Tuesday’s market close. Trump also said the US Navy would escort oil tanks through the Strait of Hormuz.
“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” Trump posted. His promises seemed to reassure Wall Street.
Goldman lifts oil price forecast
Goldman Sachs raised its second-quarter average oil price forecast to $76 from $66 on Wednesday, without mentioning Trump’s proposal.
CEO flags persistent industry worries
Stamatis Tsantanis, CEO of global shipping company Seanergy Maritime and United Maritime, told Business Insider that the maritime industry will likely need further pledges of support from Trump.
“The US commitment to support shipping through naval escorts and insurance backing is a welcome step, but many industry insiders remain cautious,” Tsantanis said, adding that ship owners need to see a secure corridor to pass through before confidence returns.
“The priority for the industry is not just moving cargo, but protecting the lives of seafarers, the value of vessels, and avoiding what could become a major environmental disaster if a tanker were seriously hit in such a narrow and sensitive waterway,” Tsantanis said.
Famed economist Mohamed El-Erian raised concerns that, just because the US is offering protection for ships in the Strait of Hormuz, that doesn’t mean shipping firms will opt to move cargo through the waterway.
Trump’s strikes on Iran could cost the American economy up to $210B
The Independent reports Trump’s strikes on Iran could cost the American economy up to $210B, report says
The U.S. war with Iran could cost the American economy as much as $210 billion, according to fiscal analyst Kent Smetters, director of the widely used Penn Wharton Budget Model.
The ongoing conflict is already driving disruption to trade, global energy markets, and gasoline prices, though it is difficult to precisely estimate how much the war will impact the economy, Smetters told Fortune.
His predictions currently estimate a $115 billion economic loss, though that figure could range between $50 billion and the upward bound of $210 billion depending on the nature and duration of the conflict.
Much of the economic impact of the war will depend on how long the conflict persists, according to analysts.
“Markets are right now really under-pricing the tail risk of a sustained engagement and an operation that does not wrap up quickly, restore travel through the Strait of Hormuz and get everything back to de-escalation and normal in a timely manner,” former Biden economic adviser and chief of policy and advocacy at the Groundwork Collaborative, Alex Jacquez, told The Associated Press.
At present, it is “not possible at this time to know” how long the U.S. fight, dubbed Operation Epic Fury, will last, according to a letter the president sent Congress.
Jet Fuel
If this bottleneck persists for over a week, we will see some serious jumps in the price of oil and gasoline.
Jet fuel is already rocketing.
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