Oil: Supply risks and marginal flow relief – MUFG

MUFG’s Senior Currency Analyst Michael Wan notes that Oil markets remain exposed to the Iran and Middle East conflict, with the Strait of Hormuz still constrained. Tankers are testing alternative southern routes near Oman and Iran has said Iraq can ship Oil via the Strait, which could theoretically add supply, though insurance, tanker availability and timing still limit any immediate impact.

Hormuz constraints keep Oil risk elevated

"As such we remain cautious on the path for Asian currencies and risk assets moving forward, but note at least two important developments in oil markets and potentially positive ones notwithstanding continued uncertainty around how the Iran/Middle East conflict will develop:"

"1st: It seems tankers are now testing an alternative route to exit the Strait of Hormuz, by hugging close to the south of the SoH where Oman is rather than the north where Iran is and where tolls are reportedly paid through Qeshm Island."

"The evidence suggests that a higher number of tankers have passed through in recent days, although to be clear the overall numbers still remain well below pre-Iran conflict levels and directionally this is more from West to East (exiting the Strait), rather than in both directions."

"2nd: Iran over the weekend announced that Iraq is now allowed to ship oil out from the Strait of Hormuz."

"Taken at face value, this may mean 3mb/day of additional oil could now hit the market, but of course there are still many unknowns right now around how Iran is defining "Iraq oil"."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)