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The failure of US-Iran negotiations has led the market to prioritize pricing in the supply reduction from a de facto blockade of the straits. Regarding the situation of the two straits: the average upward revision for the previous three weeks is 300,000 to 500,000 barrels per day weekly. Using the revised data, the daily transit volume for the Strait of Hormuz (SoH) is in the 200-300 range, and for the Bab el-Mandeb Strait, it is around 200.
Regarding Saudi Arabia: the loading volume at the Yanbu port continues to decline, with the volume heading north via Egypt and the Suez Canal currently at only about 1.5 million barrels per day. Last week, it was observed that the Ras Tanura port loaded approximately one Very Large Crude Carrier (VLCC). Whether this volume can exit the SoH is critical. As Saudi inventories are near their peak and exports have fallen sharply for three consecutive weeks, if the crude cannot be transshipped out of the SoH via ship-to-ship (STS) transfers and is forced into floating storage, the risk of Saudi storage congestion will further intensify.
Regarding the demand side: concentrated arrivals in major Asian consuming countries have secured raw material supply for July and August. However, with the re-imposition of the blockades on the two straits, South Korea may face a relatively prominent issue of subsequent raw material shortages. We have already observed South Korea turning to US purchases, and refineries may be considering reducing operating rates.
Regarding the United States: last week, US commercial inventories surged significantly, primarily due to a notable increase in imports and a continued decline in exports. The four-week average volume remains within an explainable range. The import increase mainly came from the Americas, including Venezuela and Canada, boosting heavy crude imports to sustain ultra-high refinery runs under current high margins and to maximize diesel production for economic efficiency. On the export side, due to the opening of the straits previously, Asian buyers purchased more Middle Eastern oil, reducing their purchases from the US. Currently, based on arbitrage opportunities, exports are expected to gradually recover.
01. Upward Revision of Dual Strait Transit Volumes
Transit volumes through the two straits remain low, with previous values revised upward. Following the re-imposition of the blockade, the flow through the SoH has generally been maintained in the 200-300 million barrels per day range, but data from the previous week and the current week usually have a significant lag. This week, the upward revision for the previous three weeks totals approximately 1.2 million barrels per day. For the Bab el-Mandeb Strait, the average weekly upward revision for the previous three weeks is also 300,000 to 500,000 barrels per day, with the current flow range remaining around 2 million barrels per day.
Risk of Saudi Storage Congestion Remains Unresolved
Saudi inventories remain above the 90th percentile of their historical range. Last week, total Saudi loading volumes rebounded somewhat, but loading at the Yanbu port continued to fall. The Ras Tanura port saw a week-on-week increase of nearly 400,000 barrels per day. It is estimated that one VLCC was loaded last week, and it remains to be seen if it can successfully exit the SoH. If it is diverted to floating storage, the risk of Saudi storage congestion will continue to escalate.
Arrival Volumes for Asia in July/August Relatively Elevated
The total July arrival volume for China, India, South Korea, and Japan was 17.84 million barrels per day, a month-on-month increase of 2.1 million barrels per day. As of now, the confirmed arrival volume for August is around 17 million barrels per day. Considering the increased voyage distances due to the Bab el-Mandeb blockade and the shift to purchasing longer-haul feedstocks like those from the US, August arrival volumes are expected to be not significantly different from July's. Raw material supply for August appears relatively manageable. Arrivals in China are stable. While India's arrivals have decreased month-on-month, its total arrivals in previous months were the least affected, leaving it with the most ample inventories. Japan has purchased a significant amount of WTI in previous months, and its arrivals have continued to recover, returning to pre-conflict levels. However, the risk is that its purchases of US crude have fallen sharply since July. The only country of concern is South Korea. If its arrivals decline again, it may not be able to sustain its current high refinery runs, posing a risk of future rate reductions.
02. Inventory Update: US Inventories Surge
Last week, US commercial crude inventories increased by 17.42 million barrels. The significant single-week inventory build was primarily due to the concentrated arrival of imports and export volumes falling to lows amid closed arbitrage windows. Single-week data is volatile, so it is more important to look at the four-week average and subsequent tanker schedules. The import increase mainly came from the Americas, including Venezuela, Canada, and Brazil, primarily supplementing heavy crude. This is to sustain high refinery runs and maximize diesel production under current high margins. Regarding exports, the arbitrage window to Asia and Europe has been generally unfavorable, leading to reduced export volumes. However, with the continued blockade of the two straits, Asian countries like South Korea are beginning to be forced to purchase US crude to secure their raw material supply for September and October.
Data Source: Dadi Futures Research Institute
03. Structural Data Update
Month Spread Backwardation
As of August 14, the WTI front-month spread settled at 0.93, and the front 2-3 spread was 1.37. The Brent front-month spread settled at 1.95, and the front 2-3 spread was 2.18. The SC front-month spread settled at 4.4.
Product Cracks Remain High
Brent Net Long Position Rebounds Sharply
For the week of August 11, Brent fund long positions increased by 43,680 contracts, short positions decreased by 8,177 contracts, and net long positions increased by 51,857 contracts.
WTI Net Long Position Continues to Decline
For the week of August 11, WTI fund long positions increased by 1,036 contracts, short positions increased by 8,078 contracts, and net long positions decreased by 7,042 contracts.
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