Brent tops $79 and WTI hits $74.36 after U.S. strikes on Iran and a Hormuz closure claim
Crude jumped about 4% in Asian trading Monday after U.S. strikes on Iran over the weekend. Brent topped $79 a barrel, its highest in more than three weeks. WTI rose 4.13% to $74.36. Iran also claimed the Strait of Hormuz is closed to traffic again, and struck U.S. allies in the region.
A 4% move in crude works into wholesale gasoline and diesel fast, usually within a day or two. Jobbers who priced fixed-price contracts off last week's numbers feel it first.
Hormuz
The closure claim is the piece to watch, and the piece to be careful about. Iran has made this claim before and traffic kept moving. Past flare-ups faded within a week, and the market is treating this one as heavier.
The EIA puts roughly a fifth of the world's seaborne crude through that waterway. Saudi Arabia's East-West pipeline can carry some of it around the strait, but a large share of that volume has no alternate route. If tankers actually stop, prices could keep climbing until demand falls off.
If the strait stays open and the shooting cools, the risk premium could bleed out of the price the way it has after past incidents. Watch which way it goes before you commit inventory either direction.
What it does to your margin
Crude up 4% is not automatically bad for a fuel marketer. It is bad for a marketer who is short paper and long inventory at the wrong end of the move. Rack prices follow the futures screen with a lag. If you are on rack-plus, your cost resets daily and you pass it through. If you sold fixed price to a fleet customer for the quarter, you eat the difference until the contract rolls.
Refiners are watching the crack. A 4% crude move only hurts a refinery if product prices do not follow it up. In a supply-fear rally driven by a chokepoint, products usually do follow, because the same barrels that are not moving are the feedstock for the refineries that make the products. Crack spreads can hold or widen in that scenario. Check the crack before you assume the whole industry is having a bad week.
Retail follows wholesale up slowly. If WTI holds around $74, street margin could stay thin while pump prices catch up to cost.
Refineries as targets
Ukraine's SSU said it has hit Russian oil refineries and oil depots in the first week of a 40-day operation, along with Russian military facilities. This has been going on long enough that the market has partly stopped reacting to individual hits.
A Russian refinery taken offline is product that does not reach the export market, and that product competes with barrels US and European refiners sell. It tightens the global diesel pool at the margin. Stack that on top of a Hormuz scare and you get the setup where crude and distillate move together instead of taking turns.
Schwedt
Germany's Schwedt refinery is taking South American crude routed through Poland. That is one more waterborne bidder for Atlantic Basin crude, against the same barrels US Gulf refiners want, and it shows up as a firmer feedstock cost on this side of the ocean.
What to watch
Whether tankers actually transit Hormuz this week. Watch the vessel movement.
Whether the 4% move holds past a few sessions or bleeds off like the last several flare-ups did.
Crack spreads, specifically diesel. If distillate cracks widen while crude holds, refiners are fine and buyers downstream are the ones absorbing it.
And whether OPEC says anything. The group has spare capacity and has said nothing so far.