Oil Markets Are Even Tighter Than They Appear

The shutdown of the Strait of Hormuz has triggered a massive global energy shock, disrupting approximately 20% of the world's oil supply and halting nearly all of the 35 daily tanker departures from the Gulf. With regional floating storage reaching a 120-million-barrel capacity, producers have been forced to cut 10 million barrels per day of upstream production. This crisis creates a shortfall of 10 to 12 million barrels per day, a deficit three times larger than the 2022 supply scare. While crude oil offers some flexibility, refined products like jet fuel and naphtha face acute shortages, with Middle Eastern naphtha exports to Asia collapsing to near zero. Even a swift reopening of the Strait within two weeks would leave an "air pocket" of logistical gaps, keeping Brent oil prices elevated. Consequently, price forecasts have been revised upward to an average of $110 per barrel for the second quarter, as the system requires significant time to repair and rebalance.