Crude Flows via Hormuz Shrink, Refinery Margins Tighten Despite Ceasefire, Rystad Says
Global crude markets are tightening further as oil shipments via the Strait of Hormuz continue to fall, deepening a supply shock that traders had hoped was easing after last week's brief pullback in Brent prices, Rystad Energy strategists said in a note Monday."Friday's Brent complex sell-off on Trump's reopening announcement offered some relief. Margins clawed back, and on some North Sea, West African, and Black Sea grades, the numbers briefly looked workable again," Paola Rodriguez-Masiu, chief oil analyst at Rystad, said.Physical crude costs have surged well beyond futures benchmarks, with Dated Brent averaging above $20 per barrel in April and physical differentials plus freight adding another $20 to $ 25, pushing replacement-crude economics into unworkable territory for many refiners.Rystad said some traders interpreted last week's Brent retracement as a sign that the worst of the disruption had passed. However, the underlying physical constraints have not improved.Rodriguez Masiu said the acute phase is not behind us. "Europe needs more product, and the refineries capable of producing it are cutting runs. The rational response at the refinery level would be catastrophic at the system level," she said.Oil shipments via the Hormuz have dropped since the outbreak of the Middle East conflict.Rystad said April is on track for a deeper disruption than March, with Middle East Gulf production averaging 14.3 million b/d, about 3 million b/d below last month and over 13 million b/d short of pre-war levels.The consultancy said shipments at alternative outlets, Yanbu, Fujairah, and Ceyhan, have hit record highs at a combined 6.8 million b/d, but only 4.2 million b/d of that is incremental supply, far short of replacing lost volumes.Flows improved in early April as a dual-corridor opened through Iranian and Omani waters, and Iraqi loadings ticked higher. However, traffic deteriorated again after the Apr. 8 ceasefire, despite Iran's announcement that it would reopen the Strait.With a US naval blockade still restricting ships entering or leaving Iranian ports, Rystad notes that the last remaining flows, largely Iranian crude and condensate, are now drying up.Peace talks are expected to continue ahead of the ceasefire's expiry on Apr. 22, but Rystad said even a swift resolution would not restore supply immediately.The consultancy forecasted that it would take until July for flows to recover to 80-90% of pre-war levels, and another one to two months before those barrels reach refineries as finished products.The tightening has driven the Dated-to-Frontline Brent spread to about $25/bbl, reflecting the extreme premium for barrels available for immediate loading."A market this short will not flatten gently," Rodriguez Masiu said. "It will correct through higher prompt prices, and the longer the refinery margin squeeze runs, the sharper that correction will need to be."