Oil & Iran War Context Weekly (W12)
Crude rose in further fits and starts as the Iran War stretches into its 4th week and belligerents escalate to attacks on upstream infrastructure that have already wrought durable supply losses.
Happy Friday, Oil Watchers!
Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely.
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Media Roundup: Quite a bit of long-form content this week if you are looking for something to fill your ears over the weekend, including Monetary Matters (YouTube, 1h23m), New Statesman (YouTube, 29m), Know Your Risk (YouTube, 51m). As well as Iran War Puts Global Energy Markets on the Brink of a Worst-Case Scenario (Wired, print), What Does a Global Oil Shock Mean for Canada (TVO, video), and my HBR Interview if you haven’t read that yet (The Oil Shock Is Here. And We’re Just Beginning to Feel It.).
On the latest episode of the Oil Ground Up podcast, I was rejoined by my good friend Matthew Reed, Vice President at Foreign Reports, to discuss how the Iran War could possibly end. I’ve been pretty open about my view on what I see as the inevitable end (i.e., Trump will pull back sooner than later); so, I asked Matt to challenge that argument, which he did very well, as well as helping provide a better sense of how this war was being perceived by the Gulf producers on the ground.
Summary
Flat Prices rose ~$7.50/bbl for Brent to close above $110/bbl, which is down a notable $10/bbl from Thursday morning’s high but still a steady weekly appreciation; WTI is lagging Brent by nearly $10/bbl while Middle Eastern grades are charging an ever-greater premium.
Timespreads continue to indicate acutely tight markets, especially compared to the weakness seen immediately prior to the onset of the Iran War; Middle Eastern benchmarks carried on with record prompt backwardation as the epicenter of the acute supply loss.
Inventories major commercial storage hubs still have yet to feel the brunt of the Iran War Hormuz stoppage but the effect can already be seen in total Middle East-origin oil on water, which has fallen by a staggering 12.5 million barrels per day; commercial inventory data was mixed but leaned bullish as large draws in ARA Europe more than offset small builds for the US and Singapore.
Refined Products markets remain dominated by achingly-insufficient middle distillates supply, with US diesel crack spreads topping $80/bbl: double pre-war levels, the highest ever seasonal level, and rapidly catching up to the all-time highs of ~$100/bbl realized in April 2022.
Market Positioning data revealed that net position in major crude futures and options contracts currently held by speculators is far and away the highest in the past year, at its highest level since early 2025 as a share of total open interest and in net nominal barrel terms the highest since 2021. However, despite this inbound flood of hot money, the pace of price appreciation is notably outstripping the normal expected contribution from the speculative inflows leaving panicked physical market participants in the driver’s seat of crude price discovery, a trend even more evident in exploding middle distillate refining margins.
As Well As Iran War escalation destroys upstream facilities and hits Red Sea facilities, OPEC and the IEA (bizarrely and disconcertingly) singing the same tune on the severity of the supply crisis, oil’s time space shockwave driving a wedge between major crude contracts, and war insurance costs spike but economics of the Hormuz stoppage should cover the sky-high premiums.