Need to see 10x more ships through the Strait to normalize oil prices: BofA’s Francisco Blanch

Summary

Francisco Blanch, BofA head of commodities, warns that without a US-Iran agreement oil prices will keep creeping higher into winter, driven by supply disruptions through the Strait of Hormuz and historically tight refined product markets. Record diesel and gasoline crack spreads highlight severe shortages in end-user fuels, while Europe faces a potential natural gas crisis due to heat waves and closure risks. Overall the outlook is bullish for crude, refined products, and European gas.

• Brent oil seen in $70-80 range but creeping higher if no Iran deal; upside risk is clear.
• Strait of Hormuz ship traffic at only 5-10/day vs 80-100 needed to stabilize prices.
• True shortages exist in diesel, gasoline and global gas, not just crude.
• Diesel crack spread hits record $80-85/bbl, gasoline differentials also very elevated.
• Supply causes: Hormuz refining disruptions, Ukraine strikes on Russian refineries, Chinese export limits.
• Europe at risk of energy crisis: heat waves cut hydro/nuclear output, gas already at $20/MMBtu.
• Europe more exposed than US, especially to gas and fuel imports.
• Low rivers also threaten grain shipments through Europe.