Rabobank strategist Molly Schwartz discusses conflicting narratives around Iran-related tanker damage in the Strait of Hormuz and rising Oil flows from the Persian Gulf. Despite higher volumes, Schwartz stresses that insurance, freight and inefficiencies keep markets far from normal, with Brent futures at their highest since April and physical benchmarks trading at steep premiums to paper contracts.

Strait tensions and costly delivery

“The Associated Press reports that Iran says seven tankers have been damaged in the Strait of Hormuz which, if true, would surmount to the highest number of vessels attacked in the Strait since the war began.”

“Indeed, two days ago the Wall Street Journal reported that “more oil is now coming out of the Persian Gulf than before the Iran War,” citing the success of the “Hormuz Shuttle” and that shipment from the Middle East has averaged “more than 24 million barrels a day in the week through Oct. 18, surpassing prewar levels of 23.3 million.”

“But despite the headlines, markets are digesting Iran’s assertion that the Strait is still dangerous, and Brent crude oil one-month futures closed yesterday at $113/bbl—the highest price since April.”

“The ‘Hormuz Shuttle’ is boosting crude flows through transfers near Oman, but rising insurance costs, tanker inefficiencies and attacks mean markets remain far from normal.”

“Persian Gulf–China freight rates have reached $1.4m daily, adding roughly $13.5/bbl and particularly burdening Asian refiners. Brent and Shanghai physical oil consequently command $10–25 premiums over futures. Higher volumes therefore do not guarantee cheaper delivered energy: the cost of delivery is getting so expensive that it threatens the recovery.”