Oil: Supply shock keeps prices elevated – NBC

National Bank of Canada's (NBC) Ethan Currie reassesses Oil pricing, highlighting persistent Middle East disruptions, depleted reserves and refined product shortages. He argues that these factors are keeping the West Texas Intermediate (WTI) curve elevated, with ongoing supply constraints supporting a higher-for-longer pricing environment. Even if supply conditions improve, rebuilding inventories could take years, leaving oil markets vulnerable to continued price pressures.

Persistent disruptions support higher crude

"Despite a glimmer of hope in July when visible traffic through the Strait of Hormuz was recovering (but not nearly recovered), transit volumes have dropped and been forced into the dark, with current crude volumes still underperforming pre-war levels by as much as half. Re-routed shipments haven’t allowed a full offset, either, with supply disruptions stemming from attacks on Saudi tankers and infrastructure, showing the fragility of remaining supply channels. While prompt oil contract trading has been inherently volatile on the back of these headlines, the strip has continued to grind higher, with longer-dated contracts suggesting the price impacts of persistent offline / off-potential supply will linger."

"However, more impactful have been shortfalls in refined products which have driven soaring cracks spreads, showing up as record prices at the pump. Vital global supplies of gasoline and diesel from the Mideast and Russia remain choked off, while other refining hotspots are either fully utilized and unable to meaningfully add more supply (as is the case in the U.S.) or are struggling from crude availability issues. Even worse are potentially upcoming refinery turnaround seasons which could cut supply at the time it is needed most, supporting run-ups in prices."

"There’s no easy solution to rectify shortfalls either—even if supply was restored, it could take years for inventories to fully normalize, a development that could mean higher prices for longer."

"Notwithstanding a moderation from peak spot oil prices, the pressure for policymakers to respond is only growing with a stickier strip."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)