To The Moon

5.1 Crude/Brent

The global oil market is currently operating in a state of extreme high-frequency volatility, primarily driven by the "fog of war" as conflict between the US, Israel, and Iran escalates into its second week (Bloomberg). Crude prices experienced violent swings, punchily rallying toward $100 a barrel following reports of sabotage on oil tankers in Iraqi territorial waters, which prompted the immediate suspension of operations at Iraq's oil terminals (Bloomberg). These attacks on the Marshall Islands-flagged Safesea Vishnu and Malta-flagged Zefyros underscore the broadening risks to regional energy infrastructure beyond the now effectively closed Strait of Hormuz (Bloomberg).

In response to these "unprecedented" market challenges, the International Energy Agency (IEA) has unanimously agreed to a record release of 400 million barrels from strategic reserves (Argus). This release is more than double the volume released during the 2022 Ukraine crisis, with the US alone pledging a 172 million barrel drawdown from its Strategic Petroleum Reserve (SPR) over the next four months (Argus).

Despite this massive supply intervention, market participants remain skeptical, noting that the release rate of roughly 1-2 million b/d may not fully offset the 15-20 million b/d of Persian Gulf supply currently offline (Bloomberg). Sentiment remains skewed to the upside as Iran digs in for a long-drawn-out conflict, naming Mojtaba Khamenei as the new Supreme Leader to ensure continuity in its hardline stance (Argus).

Physical markets are showing even greater tightness than futures, with Asian buyers paying eye-watering premiums for arbitrage cargoes from the Atlantic Basin to replace lost Middle Eastern barrels (Argus). Chinese state-owned refiners have accelerated purchases of West African and Brazilian crude to fill a projected supply gap of 3.7 million b/d, despite high freight rates and unfavorable arbitrage economics (Argus).

Meanwhile, Saudi Arabia has begun unusual spot tenders for crude already in transit and is rerouting exports through the Red Sea port of Yanbu via the East-West pipeline, which is expected to reach its 7 million b/d capacity soon (Argus). However, Yanbu's loading capacity is limited and cannot fully substitute for the volumes lost through Hormuz (Argus). In the US, commercial crude inventories rose by 3.8 million barrels last week as higher net imports and lower exports countered rising refinery demand (Argus). The overall market mood is one of intense anxiety, as the duration of the Hormuz closure remains the "biggest worry" for the global economy (Argus).

5.3 Naphtha

The Asian naphtha market is experiencing significant upward pressure as regional supply chains are severed by the conflict in the Middle East, which has traditionally been a primary source of light-end feedstocks. Benchmark open-spec naphtha prices in Japan surged by $33.00/mt, tracking the rise in Dubai crude values (RIM). The situation in the Middle East has turned increasingly bullish for naphtha, with traders reporting a total absence of offers despite strong demand from petrochemical companies facing critical feedstock shortages (RIM). This scarcity is exacerbated by the reported shutdown of the Ruwais refinery in the UAE, a major exporter of heavy full-range naphtha, following drone attacks (RIM).

In Japan, ENEOS has officially requested that its customers accept adjustments to supply quantities for basic chemical materials, including naphtha-derived products, due to the crisis (RIM). Operational rates at Japanese refineries have begun to decline due to crude supply concerns, with Idemitsu Kosan considering run cuts at its Tokuyama plant and other players in the Chiba area contemplating the closure of naphtha crackers (RIM).

South Korean refiners are also in a state of paralysis, unable to move on April cargo sales because they cannot guarantee the procurement of replacement crude (RIM).

In the US, Gulf Coast inventories of naphtha used for gasoline blending rose by 2% on the week to 36.1 million barrels, but this has done little to calm prices as the underlying Nymex RBOB trading basis rallied on news of potential US attacks on Iranian ports (Argus). Shifting trade flows are becoming evident, with tankers like the Zefyros in Iraq being targeted while scheduled to load naphtha for plastic feedstock (Bloomberg). The H2 April/H2 May timing spread has widened to a backwardation of $93.00/mt, reflecting the extreme prompt tightness in the market (RIM).

5.5 LPG/NGLs

The global LPG market is facing severe dislocation as the closure of the Strait of Hormuz traps significant production within the Middle East while leaving major importers in Asia and India in a state of supply shock. In the CFR Japan market, propane and butane prices for April delivery moved slightly lower in outright terms following a downward revision of the Contract Price (CP) forecast, but premiums relative to the CP advanced as buyers grew desperate (RIM). The geopolitical tension has made market participants extremely reluctant to participate in buy tenders, such as the one conducted by Osaka Gas, as the risks of releasing existing hand-held cargoes are deemed too high (RIM).

In Abu Dhabi, despite the Ruwais refinery shutdown, LPG production has reportedly continued normally, but the inability to export via Hormuz is causing stocks to build up rapidly (RIM). Producers may soon be forced to cut production if storage capacities are reached (RIM). Indian importers are facing even tighter domestic conditions, as supply from the Middle East has effectively stopped and no prompt cargoes have been secured (RIM).

This has led to rising LPG prices for commercial and household use in India, with Bharat Petroleum (BPCL) canceling its recent buy tenders due to a lack of viable offers (RIM). In China, the situation is slightly more nuanced; while enough imported cargoes were secured for household use in the short term, concerns are mounting for April onwards as Middle Eastern supplies are expected to vanish (RIM).

Chinese PDH operators, like Huayi Petrochemical, are struggling to find sellers for their buy tenders who hold suitable cargoes (RIM). In the freight market, VLGC rates for USGC-loading are falling as shipowners move their available vessels toward the Atlantic Basin to escape the Middle East conflict (RIM). This shift has sent rates for USGC-Far East via Panama lower, though bunker costs are rising sharply (RIM). In the US, FOB Gulf Coast propane prices advanced sharply, tracking crude gains, with some cargoes trading at significant premiums to Mont Belvieu quotations (RIM).

5.7 Gasoline/Mogas

The gasoline market is currently characterized by a "perfect storm" of rising demand, regional inventory draws, and war-driven volatility in futures markets. Chicago gasoline prices reached their highest level in over 18 months, driven by the spring-to-summer Reid Vapor Pressure (RVP) transition and the ongoing Middle East conflict (Argus). Regional inventories in the US Midcontinent fell to a five-week low, further inflaming the spike in Nymex RBOB futures (Argus). US Gulf Coast Colonial pipeline gasoline prices rose to $2.64/USG, their highest point since mid-April 2024, while New York Harbor prices saw similar double-digit gains (Argus). These price increases are occurring despite seasonally high supply levels, as the market refocuses on the potential for US strikes on Iranian ports near the Strait of Hormuz (Argus).

While gasoline flows through Hormuz have historically been smaller than distillate flows—averaging 507,500 b/d—the threat to global refining capacity and logistics has spooked traders (Argus). In the US, retail gasoline prices jumped by 48.7¢/USG last week, the largest weekly increase in four years, putting intense political pressure on the Trump administration (Argus). High export levels from the US Gulf Coast are expected to pare down stocks in the coming weeks, as refiners ship winter-grade surpluses to Latin America and the Bahamas (Argus).

In Australia, the nation’s top fuel suppliers have taken the drastic step of halting all spot sales to prioritize long-term contract customers, as Middle East disruptions tighten regional supply (Bloomberg). This move risks curbing supply to smaller retailers and commercial transport companies (Bloomberg).

In Mexico, Pemex has hiked jet fuel prices by 48% to track international levels, while gasoline prices are also under upward pressure (Argus).

Meanwhile, in Asia, the South Korean government is considering setting price caps on gasoline for the first time since 1997 to combat surging inflation, a move that could lead to domestic refiners withholding supply to avoid losses (RIM).

On the US West Coast, gasoline differentials were mixed, but outright values rose as inventories hit a three-month low due to refinery shutdowns at Valero Benicia and delays at PBF Torrance (Platts).

5.8 Petrochemicals

The Asian petrochemical sector is in a state of high alarm as the primary supply chain for feedstocks like naphtha and LPG from the Middle East is effectively severed. Propylene prices in Asia jumped by $130/mt in a single day, directly boosted by surging feedstock costs and the closure of the Strait of Hormuz (RIM). Actual trade in the CFR Northeast Asia market has stalled as discussions linked to market quotations become increasingly erratic (RIM).

In the UAE, the shutdown of the Ruwais refinery has also impacted the large-scale Borouge petrochemical plant, with the company stopping all sales offers and reducing operation rates to manage inventories (RIM). This has led to a ripple effect across the polyolefin market, with Low Density Polyethylene (LDPE) and High Density Polyethylene (HDPE) film prices on a CFR China basis increasing by $50/mt and $20/mt respectively (RIM).

In India, state-owned Gail has brought forward the shutdown of its Pata petrochemical complex due to government orders to prioritize natural gas for city distribution (Argus). This adds to the tightening polymer supplies in India, which are already suffering from a lack of Middle Eastern imports (Argus). Indian refiners have also been asked to prioritize propane and butane for cooking gas instead of using them as petrochemical feedstock (Argus).

In the ethylene market, prices strengthened amid concerns over feedstock availability, with Japanese refiners like ENEOS requesting customers to cooperate in the adjustment of basic chemical material shipments (RIM).

In Southeast Asia, Thailand's SCGC has decided to shut down its naphtha cracker at the ROC subsidiary, while PTTGC is only tentatively considering a restart for its OLE4 cracker in early April (RIM).

Chinese domestic prices for polymers remain supported by gains in futures on the Dalian Commodity Exchange, though buyers are starting to refrain from high-priced spot purchases as they adopt a wait-and-see approach (RIM).

The broader sentiment is one of extreme caution, as producers across the region lower run rates due to feedstock uncertainty and margin pressure (RIM)