How Long Can Markets Ignore the Oil Supply Shock?

Summary

The episode discusses the historical oil supply shock from the Iran conflict and its impact on markets. Martijn Rats explains that while the stock market is at highs, oil inventories are being rapidly drawn down. He warns that if the Strait of Hormuz remains closed for 4-6 more weeks, the oil market will become very tight by summer, and US gasoline prices could rise above $5 per gallon.

• The oil supply shock is the largest in history but markets have not fully priced it in.
• Inventories and buffers are being rapidly depleted.
• If the Strait closure continues, oil market could become extremely tight by June/early summer.
• US gasoline inventories are falling sharply due to low imports and high exports.
• Refineries are maximizing diesel output over gasoline, tightening gasoline supply.
• US gasoline prices could rise to $4.70-$4.80 and potentially above $5.
• Venezuela or other supply increases cannot meaningfully offset the disruption.
• The stock market remains at record highs despite energy disruption.