Strait of Hormuz Attack Rocks Global Oil Market
In the Strait of Hormuz, a tanker was hit by an unknown projectile. UKMTO logged it as an attack, and the wires called it a security incident. Hours later, Iran’s Revolutionary Guard claimed responsibility for striking a Togo-flagged vessel attempting an “illegal passage.” And in Washington, Donald Trump just told reporters he was nearing a major choice on whether to “annihilate” his Iranian foes, adding that “anything could happen.”
The Strait of Hormuz attack has sent shockwaves through the global oil market. Saudi Aramco, the world’s largest exporter, is weighing diesel prices in the Mediterranean. For weeks, the company has been bidding through Platts for thousands of tons of fuel it used to sell. On Friday, the company told European refiners they will be allocated no crude at all in October. Aramco sells the world its fuel. This autumn, it is buying some back.
Saudi Refining Capacity Under Threat
Its own plants keep getting hit. The Houthis say they struck a refinery at Yanbu this week, after going at the Jazan processing plant down the same coast. The East-West pipeline that runs crude across the kingdom, the line built so Saudi oil would never have to pass through the Strait of Hormuz, has been shut since drones hit its pumping stations on September 10. At least three European refiners have had late-September cargoes cancelled or pushed into November. Poland’s Orlen, which takes roughly 40% of its crude from Aramco, is out buying North Sea barrels instead.
Bloomberg dates the buying to the weeks before the September 10 strike, which points past the pipeline and toward the targeting of fuel plants themselves, which the Houthis have been hitting for months. Aramco has yet to say how much refining capacity the kingdom has lost and for how long.
Oil Market Uncertainty Reigns
On Thursday JPMorgan’s commodities team told clients it no longer has a baseline view of the oil market, the first time since this war began. “We simply don’t know how to model the endgame,” the strategists wrote.
The bank had once assumed there were economic red lines this administration would not cross: oil above $100 a barrel, gasoline near $5, the ten-year Treasury above 5%. Six months on, most of those lines sit far behind us. The bank that prices risk for a living has stopped pretending it can price this.
Refining Capacity Constraints Tighten
Chevron’s chief executive got there three days earlier, in Austin. Mike Wirth said the mechanisms that cushioned price and supply risk “have largely now played out,” and the system no longer holds the buffers it had when the fighting started.
Asked where prices go from here, he said he wished he could point to a reason things would ease and could not. Executives at ExxonMobil, Phillips 66, and Marathon Petroleum described the same exhausted system.
Refining Capacity Constraints Tighten
Administration officials are somehow still calling it a disruption, a word they have used that word since February, through a closed strait, a bombed pipeline, and the highest diesel price this country has ever recorded. Refining is the tighter constraint. American plants have served as the world’s refinery of last resort for months, running above 95% and touching 97.8% in early September, among the highest sustained rates in a quarter century.
On Sunday afternoon ExxonMobil’s Joliet refinery outside Chicago lost all power, tripped its safety systems and shut down the entire plant, throwing flames and black smoke over Will County. Joliet runs 264,000 barrels a day, roughly 6% of everything the Midwest can refine, and turns out about 11 million gallons of gasoline and diesel daily by Exxon’s own accounting.
A power failure shut down ExxonMobil’s 275,000-barrel-a-day Joliet refinery just outside of Chicago. Power came back within four hours and IIR Energy expected a return to normal service by the end of this week. A storm knocked Joliet offline in July 2024, it stayed down for weeks, and the EPA had to issue emergency fuel waivers for Illinois, Indiana, Michigan and Wisconsin to keep gasoline moving.
Federal Reserve Raises Interest Rates
The Federal Reserve raised interest rates on Wednesday for the first time since July 2023, on a 12-0 vote.
Original Article: Everyone Has Stopped Pretending Except Washington — Substack