The Impact of Middle East Conflict on Energy #Brent #WTI #IranWar

1. When storage facilities are full, production stops, and resuming capacity takes time.
2. Dubai has oil pipelines that can reach the Red Sea, but they only alleviate transportation disruptions, which is barely enough.
3. The Strait of Hormuz has already experienced substantial disruption. Even if Iran indicates that only US and Israeli-related ships are targeted, insurance companies are withdrawing coverage, and ships lack confidence, causing flow to be almost as bad as a complete cutoff.
4. The US is attempting to intervene in the market, but with limited impact. For example, granting sanctions exemptions to some Russian oil, and waiving fuel taxes for 30 days. There are also talks of using strategic petroleum reserves, but this was denied by Trump.
5. The Brent-WTI spread has shifted from early expansion to near inversion, indicating the market is rushing for WTI crude oil, while liquidity for Brent has deteriorated.
6. Transportation capacity has surged, but with high prices and low demand; related transportation and oil companies' gains are not as large as the crude oil itself.
7. It is expected that next Monday, production will halt by 3.3 million barrels per day, and if it continues for another week, it will reach 3.8 million barrels per day. If the disruption persists for three days, the halt could increase to 4.7 million barrels. (Source: JPMorgan model)
8. Kurdish armed forces may cooperate again with the US to advance into Iran. If this rumor is true, it could mean that the war will be difficult to resolve in the short term, and the Strait of Hormuz may face flow disruptions at least.
9. Short-term energy inflation expectations combined with risk aversion are pushing the dollar higher. Yesterday’s poor non-farm payroll data may cause the safe-haven attribute of gold to gradually regain market prominence.
10. Due to severe energy dependence, Europe, Japan, and South Korea's natural gas inventories are already in countdown mode. If energy prices remain high for a long time, it will inevitably push inflation higher and further impact interest rate decisions.