By Daniel Hynes
Crude oil futures rebounded as the US-Iran ceasefire failed to allay fears of further supply disruptions. The Strait of Hormuz remained largely blocked on Wednesday, despite its reopening being a key part of the agreement. Just three ships were observed leaving the region on Wednesday, according to Bloomberg ship tracking data. Some of those vessels had links to Iran. The country’s media also reported that the passage of vessels to tankers will remain blocked. This appeared to be a retaliatory action to Israel’s attacks on Lebanon. Approximately 800 vessels are currently stuck inside the gulf, mostly waiting to leave. Shipowners initially welcomed the ceasefire but warned that details were required before they deemed it safe to transit the waterway. Concerns of further oil supply disruptions were heightened after Saudi Arabia’s press agency said the nation’s oil production capacity has been cut by around 600kb/d due to attacks on energy infrastructure. This followed reports yesterday that its east-west pipeline, that has enabled it to shift around 5mb/d of production that would normally be exported through the Strait, to its Yanbu export facility on the Red Sea had been hit. Kuwait, meanwhile, said it intercepted drones and that some vital facilities were targeted.
Even if the Strait of Hormuz is reopened, it will take some time for supplies to reach the international market. We expect that only partial recovery is feasible in the near term. At best 2–3mb/d could return within the first month, largely via the restart of curtailed exports and the re-routing of shipments. An additional 2–3.5mb/d may be recoverable over the remainder of Q2, assuming sustained improvement in security conditions and no further escalation. We cannot assume all disrupted supply will return. We see a credible risk that 1–2mb/d of capacity may be permanently lost or limited, particularly from mature fields.
Global gas prices tracked oil higher as supply disruptions persisted. European gas futures rose by nearly 2%, while North Asia LNG prices nudged higher. LNG tankers remain stuck in the Persian Gulf, with no end in sight to the impasse. This has been compounded by supply disruptions in Australia. LNG output at Chevron’s Wheatstone gas facility is only operating at 50%, following damage from Cyclone Narelle last month. This could be compounded by reports that workers at the Ichthys LNG export plant are planning industrial action after talks with Japanese operator Inpex Corp failed.
Copper led the base metals sector lower as the US-Iran ceasefire struggled to hold. Rising inventories are also casting a pall over the market. Stockpiles of copper in LME warehouses have climbed to an eight year high, suggesting demand has been muted despite the recent improvement in sentiment.
Gold advanced for a third day despite tensions threatening to derail the ceasefire deal in the Middle East. Investors are encouraged by reports that peace talks between US and Iran will go ahead in Pakistan later this week. Positive economic data also eased concerns over monetary policy. The latest US personal consumption expenditures prices index didn’t reflect the recent surge in energy prices. Investors also shrugged of reports of further central banks selling. Turkey stepped up the sale of gold from its vast reserves last week, with nearly 70t sold or swapped in the week to 27 March. Turkey’s net gold reserves have fallen by about 120t since the Middle East conflict started.
Data source: Commodities Wrap