The Fragile Math Of Oil Prices

Beyond benchmarks It's not just gas volatility and soaring diesel prices. The cost of raw crude has been all over the place since the Iran war began in late February, and that reality won't likely let up anytime soon.

Snapshot: Mixed messaging on how much oil is getting out via the Strait of Hormuz has been difficult to verify. According to the Trump administration, CENTCOM, and some analysts, flows are back to normal, with passage being secured for Gulf exports except those linked to the Iranian blockade. At the same time, there has been a surge in Iranian attacks on many tankers, like the one overnight off the north coast of Qatar, and a dozen other such incidents this week. Attacks on infrastructure, like Saudi Arabia's East-West Pipeline , have only made things worse, as well as trans-shipments that are difficult to track and make pricing more costly.

Releasing stockpiles is another problem, as they will remain unreplenished for the foreseeable future. The U.S. has released a whopping 133M barrels from its Strategic Petroleum Reserve, bringing it to the lowest levels since 1982. IEA countries have also released about 200M barrels of reserves since March, but those maneuvers can also create pricing issues. As costs come down, it can send a signal to the market that supply is sufficient, which tends to push up consumption or make the situation worse.

"Inventories are reaching a stress level," Saudi Aramco CEO Amin Nasser declared earlier this week, cautioning that it could take years to refill inventories and energy turmoil could continue beyond 2027.

Crude reality: Other difficulties in sizing up oil prices are linked to traded benchmarks and products. There are massive gaps between futures and physical spot contracts, as well as refinery constraints and widening spreads for fuels like diesel relative to crude oil. Add to that the volatile factors of freight rates and rerouting complexities, on top of pressures like sovereign intervention risk and algorithmic trading.