Brent and WTI are holding below $90 per barrel while crack spreads sit at all-time highs and global oil inventories draw down. Oilprice.com argues the market is pricing a bet on trader adaptability rather than peace — and that adaptability has limits.
Crude futures sit below $90 per barrel because the U.S. and Iran are not bombing each other across the Strait of Hormuz at the moment, not because the disruption to Middle Eastern supply has been resolved. Crack spreads are at all-time highs, reflecting an increasingly tighter market, with some analysts suggesting this may only be the beginning. Global oil inventories are being drawn down considerably, with the U.S. SPR nearing a critical level.
The market is betting on adaptability
Oil price movements since the start of March have puzzled many commentators, who cannot square futures prices with the severity of the supply disruption. Reuters’ Clyde Russell wrote this week that it may be the case that the market is betting crude and refined product traders will be able to mitigate the worst of the Iran crisis.
Those commentators like to draw the parallel with 2022, when Russia’s incursion into eastern Ukraine sent Brent almost all the way to $140 per barrel and the biggest fear was that Western sanctions would cripple crude and fuel flows from the world’s second-largest exporter. Russian oil, gasoline, and diesel kept flowing abroad anyway, and that outcome is the basis for today’s optimism.
Gulf producers adapted, and prices capped
The Middle Eastern disruption is far greater than the Russian one. Iran closed the Strait of Hormuz, oil infrastructure became a target for drone and missile strikes, and Gulf states had to shut wells down for lack of storage capacity.
They adapted regardless. Saudi Arabia redirected oil flows from the East to the West and uses the Red Sea port of Yanbu to ship crude abroad, the UAE redirected flows as well, and Iraq is considering the same once it builds the capacity. That adaptation kept a cap on prices, alongside a general hope for a peace deal.
Fuel supply is tightening
But some analysts have been warning since the spring that if the war extended beyond June, all bets would be off, with global crude inventories depleted and shortages emerging in fuels. That is what is happening, albeit perhaps more slowly than the drama of events would imply.
Gasoline, diesel, and jet fuel supply is tightening because demand is outpacing supply, suggesting the disruption to Middle Eastern energy exports has been severe enough to warrant a closer look. There is no solid evidence of efforts to reach peace, only this pause in hostilities — which is why physical markets now deserve more attention than futures price charts.
Source: Oilprice.com
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