Weilun Soon

With shipping returning to the Strait of Hormuz, demand destruction in China and a shift to cleaner fuels, oil prices are expected to trend lower. Sanctions uncertainty remains but supply outlook is bearish.

"We see the strikes on Kharg Island. We've seen drone attacks on this Fujairah oil exporting hub... what we're seeing in oil prices is a reflection of that risk." The disruption of Middle Eastern oil flows through the Strait of Hormuz directly reduces global supply. US domestic producers (XOM, EOG) and broad crude tracking funds (USO) will capture the upside of the resulting global price spike without bearing the geopolitical risk of Middle Eastern physical assets. LONG. Higher crude prices directly translate to higher margins for US E&P companies and appreciation for crude ETFs. A sudden diplomatic resolution or de-escalation would cause a rapid unwinding of the geopolitical risk premium currently priced into crude.

"India trying to get some of that oil by talking to Tehran to avoid having those ships getting hit... we see Russian oil as being used as a buffer... a lot of it has already floating around on the seas." The blockade of Hormuz and the rerouting of Russian oil to Asia via US sanction waivers drastically increases ton-mile demand for the global tanker fleet. Ships must take longer, less efficient routes to avoid conflict zones, which tightens vessel supply and drives up daily charter rates. LONG. Tanker operators benefit directly from supply chain inefficiencies, longer transit routes, and the premium required to navigate or bypass high-risk zones. Sanction waivers could be abruptly revoked, or a reopening of the Strait of Hormuz could normalize shipping routes and crash charter rates.

"Some of the refiners in China and also in East Asia... have also cut back on the exports for other refined products." Asian refiners are starved of Middle Eastern crude, forcing them to reduce exports of refined products like gasoline and diesel. This creates a global supply vacuum for refined products, widening crack spreads. US refiners, who have secure access to North American crude, will step in to fill the global void at highly profitable margins. LONG. US refiners are perfectly positioned to capitalize on constrained global refining capacity and widening crack spreads. A domestic US economic slowdown could reduce baseline demand for refined products, or a rapid restoration of Middle Eastern crude flows to Asia could normalize global refining output.

"Some of the refiners in China and also in East Asia... have also cut back on the exports for other refined products." Asian refiners are starved of Middle Eastern crude, forcing them to reduce exports of refined products like gasoline and diesel. This creates a global supply vacuum for refined products, widening crack spreads. US refiners, who have secure access to North American crude, will step in to fill the global void at highly profitable margins. LONG. US refiners are perfectly positioned to capitalize on constrained global refining capacity and widening crack spreads. A domestic US economic slowdown could reduce baseline demand for refined products, or a rapid restoration of Middle Eastern crude flows to Asia could normalize global refining output.

"India trying to get some of that oil by talking to Tehran to avoid having those ships getting hit... we see Russian oil as being used as a buffer... a lot of it has already floating around on the seas." The blockade of Hormuz and the rerouting of Russian oil to Asia via US sanction waivers drastically increases ton-mile demand for the global tanker fleet. Ships must take longer, less efficient routes to avoid conflict zones, which tightens vessel supply and drives up daily charter rates. LONG. Tanker operators benefit directly from supply chain inefficiencies, longer transit routes, and the premium required to navigate or bypass high-risk zones. Sanction waivers could be abruptly revoked, or a reopening of the Strait of Hormuz could normalize shipping routes and crash charter rates.

"We see the strikes on Kharg Island. We've seen drone attacks on this Fujairah oil exporting hub... what we're seeing in oil prices is a reflection of that risk." The disruption of Middle Eastern oil flows through the Strait of Hormuz directly reduces global supply. US domestic producers (XOM, EOG) and broad crude tracking funds (USO) will capture the upside of the resulting global price spike without bearing the geopolitical risk of Middle Eastern physical assets. LONG. Higher crude prices directly translate to higher margins for US E&P companies and appreciation for crude ETFs. A sudden diplomatic resolution or de-escalation would cause a rapid unwinding of the geopolitical risk premium currently priced into crude.

"Some of the refiners in China and also in East Asia... have also cut back on the exports for other refined products." Asian refiners are starved of Middle Eastern crude, forcing them to reduce exports of refined products like gasoline and diesel. This creates a global supply vacuum for refined products, widening crack spreads. US refiners, who have secure access to North American crude, will step in to fill the global void at highly profitable margins. LONG. US refiners are perfectly positioned to capitalize on constrained global refining capacity and widening crack spreads. A domestic US economic slowdown could reduce baseline demand for refined products, or a rapid restoration of Middle Eastern crude flows to Asia could normalize global refining output.

"We see the strikes on Kharg Island. We've seen drone attacks on this Fujairah oil exporting hub... what we're seeing in oil prices is a reflection of that risk." The disruption of Middle Eastern oil flows through the Strait of Hormuz directly reduces global supply. US domestic producers (XOM, EOG) and broad crude tracking funds (USO) will capture the upside of the resulting global price spike without bearing the geopolitical risk of Middle Eastern physical assets. LONG. Higher crude prices directly translate to higher margins for US E&P companies and appreciation for crude ETFs. A sudden diplomatic resolution or de-escalation would cause a rapid unwinding of the geopolitical risk premium currently priced into crude.