Over the past weekend, direct negotiations between the US and Iran took place in Pakistan. Following a marathon 21-hour discussion, the two delegations failed to reach a consensus, with both sides remaining uncompromising on core issues such as nuclear programs and Strait control. US Central Command forces announced that a maritime blockade on all traffic entering and exiting Iranian ports will commence at 10:00 AM Eastern Time on April 13 (22:00 Beijing time today). Against the backdrop of escalating geopolitical tensions, domestic crude oil prices experienced a sharp upward surge at the opening of today's early trading session, maintaining high volatility throughout the day with intraday gains fluctuating around 4%. It is anticipated that oil prices may continue to carry a significant risk premium during the period of disrupted transit through the Strait of Hormuz.
From a fundamental perspective, Iran's effective blockade of the Strait of Hormuz has already forced Middle Eastern oil producers to cut production by approximately 10 million barrels per day. OPEC's crude oil output in March recorded its largest decline in decades, as conflicts in the Middle East hindered exports from key member states. OPEC's daily production plummeted by 7.56 million barrels to 22 million barrels, a decrease of about 25%. Additionally, refineries in Saudi Arabia, Kuwait, Bahrain, and Iran have suffered damage affecting approximately 4 million barrels per day of refining capacity. The Saudi East-West Pipeline has also seen a reduction in transport capacity of 700,000 barrels per day. If transit restrictions through the Strait of Hormuz persist, not only will there be a direct impact on crude oil supply, but the supply dynamics of related fuels will also be affected. Currently, the Strait of Hormuz is likely to maintain low or very low efficiency for navigation. The marginal flow of crude oil from producing to consuming nations remains subdued, which will accelerate the drawdown of onshore inventories on one hand, and impact the pace at which Asian nations release strategic petroleum reserves to maintain normal production on the other. However, it is certain that the current logic of supply contraction in crude oil will continue, supporting the potential for an upward shift in the overall price center. Nevertheless, trading rhythms are difficult to predict, and investors are advised to focus on timing, considering entry opportunities on significant price dips for potential recovery.
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