Brouhard on Oil Prices: ‘The Market is Exhausted’

Summary

Michele Brouhard of Kepler assesses the muted oil price reaction to Middle East tensions, highlighting exhaustion among traders and the impact of SPR releases and Chinese import drops. She points to refined product tightness as the more pressing concern, with gasoline and diesel supplies constrained. The discussion also covers the broken maritime security framework in the Strait of Hormuz, skepticism around the 43-day SPR supply figure, and the potential long-term risk of Canada diversifying its energy exports amid US tariff threats.

• Oil prices rose less than 1% despite geopolitical headlines, attributed to trader exhaustion and ceasefire rumors.
• Refined products (gasoline, diesel) are significantly tighter than crude, driven by constrained Middle Eastern and Russian supplies.
• Crude oil has seen softness from Chinese import drops, Saudi/UAE rerouting, and SPR releases.
• Freedom of navigation in the Strait of Hormuz and Red Sea is broken, requiring a new structured security framework, possibly including a 'toll' system.
• The SPR's 43-day supply figure is questioned, but 70 million barrels remain available for release.
• US tariffs on Canada could incentivize Canada to build infrastructure to export oil to Asia/Europe, threatening US energy independence and cheap energy prices.
• Canadian border integration with electricity, natural gas, and refined products gives Canada leverage that could be used as a weapon.