Since the onset of Iran war on 28th Feb, Brent has moved from $80 levels to currently $115 levels. It tested $120 levels twice in the last two weeks but any breach above this crucial level might bring severe demand destruction as well as the onset of TACO (Trump Always Chickens Out) trade. In this report we look how supply is looking across SoH (Strait of Hormuz) currently, increase in prices for various crude products, how demand destruction has already started happening & how a $120+ level on Brent can force Trump to call an end to US & Israeli attacks on Iran. It is another moot point how Iran might react to this development. Whether they continue keeping SoH on hold till their security guarantee demands are met or they allow SoH to open up as there economic threat value has no further justification. Currently the polymarket odds for the event ending by 31st March is only 6% compared to 24% last week. We see these odds as attractive for our view that the event might end by 31st March. Techincally SoH is seeing 16mbpd daily hit to flows which is almost 97% of normal traffic. The increase in spread between WTI & Brent could reflect that the market is upgrading its probability of US export restrictions. Dubai cash prices closed $54 above Dubai nearby futures prices yesterday, reflecting a large premium for “prompt” delivery of Middle Eastern crude. In contrast, Brent cash prices are similar to Brent nearby futures prices, confirming the extreme physical tightness in (Middle) Eastern crude markets hasn’t fully spread yet to the West. We are seeing sharp fall in refined product flows. Shipments from the region’s major exporters are down about 30% over the past 10 days versus the five month baseline, with preliminary data for the last week pointing to an even steeper 35% drop. The pullback is sharpest in jet fuel (down more than 40%), followed by gasoline (down more than 30%) and diesel (down more than 20%). Diesel has emerged as Asia’s importing nation’s immediate choke point, with surging prices slowing both travel and freight. In many crude importing regions, demand isn’t being reduced by choice but by the physical absence of inputs. We believe that if Brent averages $100 in March, the price effect alone would trim global demand by about 1 mbd in April— before accounting for additional losses from grounded flights in the Middle East and outright physical shortages. That is a global growth shock coming after the initial inflation shock.
