What's the Market Missing About Oil and Tankers?

Oil is re-emerging as a binding constraint on global financial markets, signaling potential volatility for equities and credit as the negative correlation between energy prices and risky assets strengthens. Physical market indicators—including declining tanker traffic through the Straits of Hormuz and Malacca, surging freight rates, and depleted inventories in Japan and Singapore—suggest that supply is significantly tighter than recent price dips imply. Geopolitical risks are escalating, with Houthi attacks extending to the Red Sea and Iran potentially leveraging higher oil prices to force U.S. concessions. Furthermore, the U.S. has lost its capacity to act as a global supply buffer due to low domestic distillate and gasoline stocks. Consequently, Brent crude remains undervalued with a fair value near $100 per barrel, creating a bearish outlook for stocks while reinforcing the case for gold as a strategic hedge.