Strait of Hormuz closure rattles global fuel markets

Mounting miscalculations and a retreat to narrow self-interest by major countries, including the United States and China, are threatening to turn the current conflict in Iran into a global crisis for the supply of refined oil products.

- Clyde Russell is Asia Commodities and Energy Columnist at Reuters.

A storage tank is seen at a Bharat Petroleum Corp oil refinery in Mumbai, India, on March 3. Oil has extended gains as tanker traffic through the Strait of Hormuz is all but halted.

(BLOOMBERG)

Much of the media focus tends to be on the price of crude oil, with benchmark Brent crude futures jumping as much as 20% to $111.04 a barrel, the highest since July 2022, in early Asian trade on Monday.But while the leap in crude is dramatic, of more concern is the even bigger surge in the cost of refined fuels such as gasoline, diesel and jet fuel, which are the products that consumers actually buy.

The explosive climb in refined product prices last week was led by jet fuel, with Singapore spot prices <JET-SIN> hitting a record high of $225.44 a barrel on March 4, before easing to end the week at $155.82.

However, that price is still 66.7% higher than the $93.45 a barrel that prevailed on February 27, the day prior to the United States and Israel launching an aerial campaign against Iran.

Singapore gasoil, the building block for diesel and jet fuel, reached $123.39 a barrel on March 4, the highest since September 2023 and up 33.5% from the close on February 27.

In effect, product markets in Asia are starting to price in a shortage of supply of the key fuels that keep economies running.

The effective closure of the Strait of Hormuz is cutting some 18 million barrels per day (bpd) of crude and products, roughly split into 14 million bpd of crude and 3 million bpd of products, according to three-month moving average data compiled by commodity analysts Kpler.

While the administration of US President Donald Trump claims the Strait remains open and has offered to insure vessels transiting the narrow waterway between the gulfs of Persia and Oman, the market has yet to be convinced that Iran won't attack any ship attempting passage.