Oil Prices Breach $100 as Hormuz Flows Hit Near-Zero: Is This the New Floor?

Brent crude has climbed back above $100, which is more than just a price surge; it's a "structural reset." Goldman Sachs' tracking data shows that oil flows through the Strait of Hormuz have dropped by 97%, and global emergency reserves are desperately trying to fill a gap of tens of millions of barrels per day.

The conflict with Iran has evolved from geopolitical friction into a full-blown supply crisis.

Brent crude rose 7% to 9% this week, and surged nearly 30% last week. What's driving oil prices isn't sentiment, but a real, quantifiable shortage.

What caused the supply chain collapse? The scale of destruction in this crisis is unparalleled by any conflict in the past decade.

Goldman Sachs data shows that the Strait of Hormuz's daily oil throughput has dwindled to only 600,000 barrels. It's worth noting that the Strait of Hormuz previously accounted for 20% of global oil consumption. In other words, the world's most vital energy artery has been severed!

Downstream losses are also widening. Goldman Sachs estimates that even with detours to Saudi or UAE ports, export losses still reach 16 million barrels per day. The IEA estimates that as of March 10th, crude oil production had been reduced by at least 10 million barrels per day. Adding to this the preventative refinery shutdowns, production has decreased by another 2 million barrels.

The measures are merely a drop in the ocean

Faced with such a severe supply crisis, what can be done?

The current policy力度 (intensity/strength) is indeed unprecedented. IEA member countries have agreed to release 400 million barrels of strategic reserves. Goldman Sachs' model shows that this equates to releasing 2.4 million barrels per day over 90 days, a faster pace than during the 2022 Ukraine crisis.

The US Treasury also issued an exemption order, allowing the purchase of Russian crude oil already at sea before March 12. These are all pressure relief valves.

But Goldman Sachs says these measures can only offset half of the inventory losses. ANZ analysts point out: this is not a short-term shock; the supply loss has entered a "structural phase." The longer it drags on, the higher the oil price will be needed to restore balance.

Is $100 an oil price the bottom rather than the top?

On Friday morning in Asia, WTI crude oil was around $94.05, and Brent crude oil was around $100.34.

Although the news of the Russian exemption caused prices to fall temporarily, this measure only had a short-term effect, perhaps because the spot supply simply couldn't keep up, and the buying power was terrifyingly strong.

The options market was also quite volatile today. Implied volatility soared, with everyone bullish. The futures discount was also widening, reflecting extreme tightness in the spot market, rather than speculation.

The forecasting market is also pessimistic about the timeline. The chances of ending the conflict in March have dropped to 19%. The current window points to late April to mid-May.

Timing is critical. Every week the Strait of Hormuz is shut down, inventories will be further depleted. Strategic reserves simply cannot be replenished. By the time a ceasefire is reached, it could take several months to make up for the losses.

The only risk to this view is shrinking demand. If oil prices remain above $100 for an extended period, inflation will spiral out of control again. Central banks may not cut interest rates, and economic growth will slow.

This demand ceiling does exist, but it has a lag and is typically measured quarterly.

Currently, the most important data is Goldman Sachs' ship tracker. Only when crude oil flows recover to 2 to 3 million barrels per day will the gap begin to narrow, and only then will crude oil prices likely return to a reasonable range.