PHANTOM TOLLBOOTHThis is a very good article. It is an abbreviated interview with this guy: "The anonymous energy trader
@CRUDEOIL231 on X manages a pod at a hedge fund owned by one of the world's largest commodity trading firms. He took a break from longing his oil longs to survey the damage to production capacity, and explain why freezing Iranian control of Hormuz is fundamentally untenable."
Probably worth a follow on X.
What do you make of the ceasefire deal announced yesterday? What will this do to oil prices in April / May / June?Oil prices will
likely show weakness for a few trading days. However, it is highly doubtful that this will lead to a permanent peace agreement.
Conditions such as Iran's continued control over the Strait of Hormuz, acceptance of
uranium enrichment, lifting of all major sanctions, payment of reparations to Iran, and a cessation of hostilities on all fronts
including Hezbollah in Lebanon seem nearly impossible to reach a consensus on.
Iran's control over the Strait of Hormuz directly conflicts with the vital interests of GCC countries, and the uranium enrichment issue remains difficult to resolve given the justifications for this war.
Lifting sanctions requires not just executive action but congressional approval. Furthermore, with both sides claiming victory, paying reparations would essentially mean admitting defeat and acknowledging acts of aggression. For the US government, this is an absolute non-starter.
The two-week ceasefire appears to be more of a tactical timeout rather than a fundamental resolution. While it may cap the ceiling for front-month prices, that's about it. Oil prices will continue to stay at elevated levels.
Do you think Hormuz traffic will normalize? What time frame?The 150 million barrels of floating storage currently trapped in the Persian Gulf will likely attempt to exit the Strait. The short-term dip in oil prices reflects the market's fear that this crude will hit the market all at once.
The real issue is the two-week timeframe. Since no one knows what happens after those 14 days, most shipowners might be willing to exit the Gulf from west to east to offload, but they will hesitate to enter the Gulf for loading.
Even in an optimistic scenario,
I don't see the traffic volume over the next two weeks recovering to more than 50% of pre-war levels.
What level of impairment has there been to Iran / GCC production capacity? If the ceasefire holds will production be able to snap back fairly quickly?Nearly 12 mb/d of production has already been shut in, and it cannot be restored quickly.
First the tankers currently inside must exit the Strait. Then incoming tankers must enter from outside for loading. Finally to actually restart production, the onshore storage tanks, currently at full capacity, must be drained before the taps can be turned back on.
Therefore two weeks is nowhere near enough time to resume production. Even assuming the ceasefire holds, it would take at least 6-8 weeks to recover more than 70% of the shut-in volume. In the meantime, global crude inventories will continue to be drained.