Oil Narrative
Market Overview
Trump's speech on Thursday 2 Apr failed to deliver the de-escalatory message that the markets wanted to hear. As a result, June ICE Brent rose by ~9$/bbl and closed at 109$/bbl before Good Friday.
• WTI May/June spreads are already at a whopping +13-14$/bbl.
On 4 April, Trump again gave his 48-hour ultimatum to Iran to make a deal and reopen the Strait of Hormuz by 6 April (and now delayed it to 7 April 8 pm EST) threatening to strike Iranian power plants and civilian infrastructure. All of this fell on deaf ears as more attacks surfaced over the weekend.
A US fighter jet shot down in Iranian airspace, Bahraini petrochemical plant targeted in drone attack, two Kuwaiti power and water desalination plants were targeted and two power generation units have been taken off grid, the Kuwaiti Petroleum HQ was hit, BAPCO tank on fire after Iranian attack. Don't forget - US/Israel had already hit power and desalination units in Tehran first.
ICE Brent and Nymex WTI futures have been fairly muted, given the scale of disruption that we are seeing in the markets. An outright 10-11 mbd of crude have already been shut in and will take time to recover.
However the physical markets have been screaming of supply shortages. DFL was at +14$/bbl, Murban premium vs Dubai hit a high of +53$/bbl in March trading
Recovery Outlook
Timeline extends Gulf infrastructure damage requires significant repair (refineries, pipelines, terminals)
Shut-in fields face reservoir complications on restart after prolonged closure
Lingering war risk insurance restrictions keep some vessels away from the region
Conflict leaves security uncertainty that delays crew and ship owner confidence.
Estimated minimum: 1–2 months upstream · 2 months refining · 3 months petrochemicals.
Jet fuel was the hardest hit at the start. No alternatives for production and no strategic storage. Some airlines are forced to induce demand destruction.
• Next came diesel - the workhorse of the barrel, and with refining runs lower in Asia plus less medium sour crudes producing less gasoil yields going forward, diesel is facing a massive shortfall. Prices have increased 100%.
• Mogas, particularly higher octane barrels are pricing up. Europe had plenty of inventory in the prompt but watch out for summer.
• Naphtha + LPG availability into the key Asian petrochemical sector is scarce, leading to multiple force majeures.
• Fuel oil supply imbalances in the key Singapore blending hub will start to come in April. Lower refinery runrates with more lighter crudes essentially reduces fuel oil production.
