[Weekly Perspective] Energy & Chemicals | Crude Oil: Trump TACO; Oil Prices Fluctuate at High Levels

（Source: Haizheng Futures Research Institute）

Crude Oil SC

Abstract

On the supply side, the primary contradiction in the current crude oil market still lies in the supply risks triggered by the geopolitical conflict between the US, the US’s ally and Iran. Judging from recent news, on the bullish side, the Yemeni Houthi armed group has joined the fighting. At present, the Saudi east-west oil pipeline that bypasses the Strait of Hormuz is transporting oil at full load capacity of 7.0 million barrels per day. Of this, 2.0 million barrels are shipped to Saudi Arabia’s domestic refineries. Currently, the crude oil export volume via the Saudi Yanbu port has reached 5.0 million barrels per day. Saudi Arabia also exports about 0.7 to 0.9 million barrels per day of refined products. The Yanbu route can partially offset the supply shock caused by the closure of the Strait of Hormuz. As the Houthi armed group takes part in the war, market concerns may lead to attacks on oil tankers transiting through the Red Sea and the Strait of Mandeb, forcing Saudi Arabia to cut production like Iraq and Kuwait. Iran attacked the Kuwaiti oil tanker Al-Salmi, which was fully loaded, at the Dubai port, and it also attacked the oil tanker Aqua One, leased to Qatar Energy, in Qatar waters in the Gulf region. In a national televised address on Thursday, Trump said that over the next two to three weeks, the US will deal a heavy blow to Iran. The statement suggests that military action may escalate in the short term. On the bearish side, Trump said he expects the US to end its war with Iran within two to three weeks, implying that the US has basically achieved its military objectives and will leave the resolution of the Strait of Hormuz issue to other countries. Whether or not an agreement is reached, even if the Strait of Hormuz remains broadly closed, he is still willing to end US military action against Iran. Iranian President Pezeshkian said Iran has no intention of starting a war, but is willing to end the war as long as it can ensure it will not be attacked again.

On the demand side, overseas refined product crack spreads are at a high level. As of the week of March 27, US refinery utilization rate was 91.1%, down 0.8 percentage points month-over-month. In the week of April 1, the start-up rate of domestic Shandong teapot refineries’ atmospheric-vacuum distillation units was 60.32%, down 2.18 percentage points month-over-month.

On the inventory side, US commercial crude oil and Cushing crude oil continue to build, while gasoline and distillate oil draw down. The head of the International Energy Agency, Birol, expects that the oil supply loss in April will be double that of March, and also considers further use of strategic petroleum reserves.

Overall, judging from the signals released by the US and Iran, there remains a relatively large gap between the two sides on reaching an agreement. Trump’s TACO has brought significant uncertainty to geopolitics. With other Middle East oil-producing countries holding back stocks and reducing output, and oil facilities damaged, the oil price center of gravity is unlikely to return to the pre-war level, and oil prices will remain range-bound at high levels with fluctuations. As for arbitrage, it is暂且观望; as for options, they are暂且观望.

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Analyst Profile ABOUT US

Zheng Mengqi (Trading Advisory No.: Z0016652): Haizheng Futures energy and chemicals research analyst, holds a Master’s degree in Economics, focuses on research on energy sector products, covering crude oil, asphalt, fuel oil, low-sulfur fuel oil, and LPG. He was named the 15th and 16th best commodity analyst for industrial products by the Futures Daily. He has repeatedly published research reports on platforms such as Futures Daily, the Lujiazui Commodity Forum, and others. He has also been interviewed multiple times by various media outlets including Futures Daily, Xinhua Finance, China Securities Journal, and Daily Economic News, among others. His views have been republished by multiple media outlets.

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