Oil Market Faces 'Higher for Longer' Risk: Saxo Bank

Summary

• Main thesis points to a "higher for longer" price risk for oil due to persistent supply disruptions from the Middle East conflict.
• Supply is not just constrained but actively being taken off the table; damaged infrastructure and shuttered wells mean supply recovery will be slow even if a ceasefire occurs.
• A massive divergence exists between Brent crude prices and refined product prices, indicating extreme tightness in the product market.
• The world is "incredibly dependent" on the Middle East for middle distillates (like diesel), a product slate that cannot be easily replaced by US (gasoline-oriented) or Russian supply.
• The temporary easing of US sanctions on Russian products is likened to a "small Band-Aid on a massive wound" and will not meaningfully heal the supply shortage.
• The market entered the conflict with high crude inventories stored at sea, which are now being drawn down, providing temporary relief.
• A key uncertainty is where the next barrels will come from if the ~10 million barrel per day disruption continues, especially once the floating storage is depleted.