Oil Narratives

Signature between Iran-US MoU appears imminent

Oil Narratives - Geopolitics

Flat prices have been in free fall over the past month as the market prices in an agreement to sign the MoU that would cease hostilities between the US and Iran, paving the way for flows to resume from the Strait of Hormuz.

As of the time of writing, the agreement has not yet been signed and not without strife from Israel, which has its own strategic goals contrary to the current agreement's focus on Lebanon's front, which serves as a key risk factor towards a reversal as longs in the market unwind.

Prepositioning of vessels for reopening has already begun, but many players remain notably uncomfortable with the lack of certainty surrounding the market, making a return to full AG flows highly unlikely in the immediate term, while trapped cargoes in the Strait will be the first to move.

Products to lag crude in a reopening of the Strait

Oil Narratives: Products impacted by a potential reopening of the Strait

Refined products will follow crude lower if the MoU holds, though normalising balances will take longer as the refining system clears supply trapped in the AG.

The crisis hit downstream demand hard through flat price spikes. As prices retreat, lost demand, particularly for industrial products such as naphtha, will start to return.

US inventories remain extremely tight across almost all products, keeping export arbs closed.

This points to PADD 3 as one of the first regions to visibly recover should the MoU hold.