Fighting Threatens Oil Supplies: Red Sea, Black Sea Risk

Conflicts across the globe are increasingly impacting energy markets, raising concerns about potential chokepoints and shortages. Diplomacy is underway between the U.S. and Iran regarding the Strait of Hormuz, but regional acceptance of any deal remains uncertain. Simultaneously, Houthi rebels threaten shipping in the Bab el-Mandeb Strait, a crucial route for Saudi oil exports, with alternative routes like the Suez Canal having capacity limitations for larger tankers.

In Eastern Europe, Ukraine's ongoing attacks on Russia's oil infrastructure and Black Sea tankers have significantly reduced its refinery output. This has led to a ban on diesel exports as Moscow prioritizes domestic consumption, tightening both crude and refined product markets globally. The situation is further complicated by a recent Ukrainian strike on an Iranian vessel in the Caspian Sea.

Analysts warn that the refined products market is in a more precarious state than crude oil. With significantly lower stockpiles of gasoline, diesel, and jet fuel compared to crude oil, even a moderate drawdown poses a substantial risk. This imbalance has caused a dramatic surge in crack spreads, the price difference between crude oil and refined fuels, with gasoline crack spreads increasing substantially in the U.S.