Traffic in Hormuz has plummeted, yet the price of oil has not reached the $100 mark
Author: Huohuo Original title: Hormuz traffic has plummeted once again. Why haven't oil prices stabilized above $100? TL; DR · Some daily traffic levels in Hormuz fell to a very low level, but Brent did not continue to stand at $100. · The market is temporarily betting that inventory, transit, alternative exports, and buyer detours can absorb some of the impact. · Related subjects: BRENT/WTI crude oil, energy ETFs, oil tankers, independent Chinese refineries, diesel chains, gold. Since August, shipping tracking and media reports have shown that daily traffic volume in parts of the Strait of Hormuz has dropped to a very low level, and there are even statistics that almost no tankers pass through. But Brent crude did not stand at $100 continuously. After a brief surge in late July, it has recently been back around $90 for more time. This is where the current energy market needs the most explanation. Around 2024, about 20 million barrels/day of oil products passed through Hormuz, accounting for about 27% of global shipping oil, and LNG (liquefied natural gas) also accounts for about one-fifth of global trade. According to the traditional pricing framework, this area has been threatened for a long time, and oil prices should quickly be included in the supply cutoff premium. The answer given by Hormuz, which affects the oil and gas trade market, is now more restrained. The risk has not disappeared, but investors are temporarily convinced that inventory releases, trans-shipment outside the bay, and alternative export and shipping arrangements can share the impact. The oil price transaction is not “strait safety,” but “strait traffic becomes more expensive.” The US-Iran impasse provides the political context for this round of reevaluation. According to reports, the two sides are in dispute over the implementation conditions of the June Interim Memorandum. The US maintains blockade and sanctions pressure, while Iran requires that normal traffic be resumed only after the conditions are implemented. When the dispute hits the market, it's actually a matter of cost allocation: who bears the higher risk of insurance, financing, voyage, and sanctions. The worst case scenario for oil prices has yet to be traded. Currently, the market is not pricing Hormuz as a long-term complete supply cut. If investors believe that 20 million barrels/day of marine oil will disappear for a long time, it is difficult for Brent to repeat it around $90. The price did not continue to stand at $100, which means traders are more likely to understand it as blocked access, rising costs, and delayed delivery rather than a broken supply chain. There is still statistical noise here after Brent rushing higher and falling back. The sharp drop in some daily traffic volume may be due to ships shutting down AIS positioning, short-term waiting for shipowners, differences in data source screening, and may also indicate that commercial shipowners are unwilling to enter high-risk waters. The former is closer to data distortion, and only then will the latter cause a continuous supply shock. Therefore, oil prices have not stabilized above $100. It's not that Hormuz is unimportant, but that the market is still waiting for tougher verification. Whether Iran can continue to expand its attacks, whether the US escalates the blockade to more direct action, and whether Asian buyers can bypass shipping and sanctions restrictions will all change this pricing. The buffer mechanism split the shock into multiple segments where oil prices did not immediately get out of control. One of the core reasons was that the shock did not hit the terminal supply all at once, but was broken down into inventory, shipping, trade, and finance. The most immediate buffer comes from inventory and alternative supply expectations. Strategic oil reserves, coordinated international releases, idle OPEC+ production capacity, and Saudi Arabia and the UAE's export capacity outside the strait may weaken the impact of single channel disruptions on spot prices. They can't be used indefinitely, but they are enough to keep the market from pricing in disaster scenarios for a while. The detour capacity only covers part of the second layer of buffering from ship-to-ship transfers. Some cargo can be moved around Fujairah or the Gulf of Oman and then re-routed. This increases insurance, waiting times, and operating costs, but allows the logistics of goods to remain flexible. The third layer of buffering comes from the choice of buyers and shipowners. Some Asian buyers and shipowners may switch to off-bay loading, transshipment, or delayed port of call arrangements, and LNG transportation may also take similar safe-haven actions. As a result, a decrease in traffic volume in Hormuz does not necessarily equal a simultaneous decline in the amount of oil and gas available globally. That's the heart of current pricing. The physical risk remains, but it is being shared by financial inventories, shipping engineering, and trade arrangements. Oil prices haven't exploded because the system is still running. The reason why oil prices are not falling is because the system is more expensive to operate. Impacts are absorbed in segments, and long-term costs are buffered into the supply chain in the short term, and the more effective it is to invest in long-term restructuring. Saudi Arabia and the UAE are promoting off-strait reserves, Fujairah transit, and alternative export capacity, and discussions on pipeline and port investment in the region that bypass Hormuz are heating up, all pointing in the same direction: the energy chain is reducing its dependence on single-point traffic. This type of restructuring will not immediately change the global supply and demand schedule. The new pipeline requires financing, construction, and safety conditions, and the expansion of strategic reserves will take time...
