Renewed US-Iran tensions have sent crude prices soaring, highlighting the vulnerability of the vital Strait of Hormuz, while Chinese refinery activity supports increased crude demand amid ongoing geopolitical uncertainties.
Geopolitical risk returned to the oil market last week as fighting between the US and Iran intensified again, lifting concerns over shipments through the Strait of Hormuz. Brent crude climbed above $95 a barrel as traders priced in the possibility of further disruption, while natural gas and diesel also moved higher. The Strait is one of the world’s most important energy arteries: the US Energy Information Administration says roughly 21 million barrels a day passed through it in 2022, equal to about one-fifth of global petroleum liquids consumption.
The renewed tension matters because even short-lived interference in the narrow waterway can ripple quickly through shipping, inventories and prices. S&P Global reported earlier this year that the US sent additional sailors and Marines to the Middle East after threats to tankers in the area, underlining how closely Washington is watching the route. Reports from the region have also pointed to attempted seizures of commercial vessels, reinforcing the view that the corridor remains vulnerable to sudden escalations.
At the same time, China’s refinery system is becoming a bigger support for crude demand. Planned clean-product exports are expected to top 4 million tonnes in September, up from about 3.5 million tonnes in August, according to the industry summaries. Actual exports of gasoline, jet fuel and gasoil reached about 2.9 million tonnes in August, a one-year high, after having fallen below 0.8 million tonnes in April. One market report from Mysteel said planned refined oil exports in August were lower than in July, but the broader picture still points to a recovery in Chinese product shipments as crude availability improves and refiners raise runs.
Diesel has been the tightest part of the market. The ICE gasoil crack, a measure of the profit margin for producing diesel from crude, jumped to a record $84.4 a barrel after rising by $6.6, the highest level in data going back to 2011. That suggests middle-distillate supply remains constrained even as Chinese exports recover. Choice Institutional Equities said the combination of higher refinery throughput in China and persistent geopolitical risk could keep upward pressure on crude, while also supporting refining margins for companies with heavy diesel exposure. It also said the September-to-November maintenance season should tighten product availability further, helping refiners such as CPCL and MRPL even as higher crude costs weigh on oil marketing companies.
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