The Situation in the Strait of Hormuz Is Underestimated by Oil Traders
A Finnish oil market expert believes that oil traders are clearly underestimating the danger of events in the Strait of Hormuz and points out that Iran’s actions are more significant than those of the US and Trump, who managed to temporarily quell market panic with statements that have no basis in reality.
There is a risk in oil production around the Strait of Hormuz that may become apparent in the coming days or weeks.
This is what Perttu Räisänen, a commodities journalist at Kauppalehti, says on Wednesday’s Talousaamu. Oil and oil-refined products production plants on the Arabian Peninsula have had to reduce production volumes.
“Products should be shipped out through the Strait of Hormuz and now it can’t be done. Stockpiles are starting to fill up, and that would lead to the entire production having to be shut down,” Räisänen says.
Restarting Production Could Take Weeks
The shutdown of production could happen quickly, but the ramp-up would not. Räisänen says that restarting production could take weeks or even a month.
“This would cause a long-term market disruption that would be reflected in a fairly wide area,” Räisänen says.
The clock is ticking all the time.
“Hopefully, this situation will be clarified in the coming days. But if we don’t hear anything next week, the oil market will start to worry more,” Räisänen says on Talousaamu.
Iran’s Actions Are More Important than US Ones
The price of Brent benchmark oil was almost $120 per barrel on Monday.
The price started to fall when US President Donald Trump announced that the Iran war was nearing an end.
“It was interesting how the market took Trump’s statement as such a reassuring message. Of course, there was a lot of panic in the oil market on Monday, so even a small calming message can go a long way,” Räisänen says.
Since then, the country has stepped up airstrikes on Iran. In response, Iran has begun mining the Strait of Hormuz. The market price of oil is now hovering around $90 per barrel.
“We should look more at what Iran intends to do than what Trump and the US intend to do. Although a large part of Iran’s military and equipment have been destroyed, they have the ability to wreak havoc in the Strait of Hormuz if they decide to do so,” Räisänen says.
“This is the angle that the market has underestimated to some extent.”
Source:
- Kauppalehti (in Finnish)