Global Crude Oil Prices Slip After Vessel Transits Strait of Hormuz

---

Written by Dan Graeber for IIR News Intelligence (Sugar Land, Texas)

---

Summary

Chevron raises concerns about physical supply shortages. Maersk remains cautious about traversing the Strait of Hormuz. But Washington says a ceasefire is holding.

---

Oil Down after Trading at $114 per Barrel

Global crude oil prices slipped Tuesday after global shipper Maersk said a vessel made it through the Strait of Hormuz, though alarm bells are still ringing over the economic fallout from the conflict.

Industrial Info Resources has followed events since conflict began with joint U.S.-Israeli airstrikes on Iran in late February. Fujairah Refinery Company Limited plans to bring its 85,000 barrel-per-day (bpd) refinery in the United Arab Emirates (UAE) back online by May 30, some two weeks later than previously expected. It was damaged by a drone attack on Monday. Subscribers to the Industrial Info Resources Global Market Intelligence (GMI) Petroleum Refining Plant Database can view a detailed refinery profile. According to Industrial Info Resources data, there are 322 active petroleum refinery projects in the UAE, worth US$28.43 billion.

Citing sources familiar with the matter, meanwhile, Bloomberg reported that QatarEnergy was extending its force majeure on deliveries of liquefied natural gas (LNG) to mid-June because of the conflict. Force majeure is a contractual clause freeing an entity from its obligations due to circumstances beyond its control.

About 20% of the world's crude oil and LNG shipments are disrupted because of dueling U.S. and Iranian naval blockades of the Strait of Hormuz. During the weekend, ships were attacked off the coast of the United Arab Emirates, despite insistence from U.S. officials that a ceasefire was holding.

Dan Caine, the chairman of the Joint Chiefs of Staff, told reporters Tuesday that recent events were below the threshold of major combat operations. Congressional approval is necessary for any military engagement lasting more than 60 days, and the White House is seeking to avoid testimonial scrutiny over the conflict.

"Since the ceasefire was announced, Iran has fired at commercial vessels nine times and seized two container ships, and they've attacked U.S. forces more than ten times -- all below the threshold of restarting major combat operations at this point," he was quoted by the Associated Press as saying.

With U.S. President Donald Trump announcing Project Freedom, a military plan to allow for safe passage through the Strait, global shipper Maersk said a U.S. flagged ship made it through unharmed, though it appeared to be a one-off given cautionary statements from the company earlier on Monday.

"Volatility persists in the situation. In coordination with our security partners, we have assessed that as of now, transit through the Strait should be avoided," the company said. "We will continue monitoring developments and provide updates as clarity improves."

By the Numbers

• 3.1% global economic contraction could be a best-case scenario
• 8.5 million bpd can avoid the Strait by way of pipelines

Options are available to avoid the Strait of Hormuz. The Saudi East/West crude oil pipeline is running at its full rate of around 7 million bpd, while the Habshan - Fujairah Crude Oil Pipeline (ADCOP) can carry around 1.5 million bpd. Neither, however, can entirely make up for the estimated 20 million bpd that would normally move through the region.

Oil Prices Down, But Markets Remain Tense

Profit-taking, meanwhile, seemed to be in play in early Tuesday trading after the price for Brent crude oil topped $114 per barrel in the previous session. Brent was trading at around $111 per barrel shortly after the start of trading on Wall Street. Retail gasoline prices, meanwhile, jumped 3 cents per gallon overnight to average $4.48 for regular unleaded, according to AAA.

Despite the drop in crude oil prices, concerns remain about the trajectory of the global economy and the state of energy security. Kristalina Georgieva, the head of the International Monetary Fund, warned the global economy could be in dire straits should the conflict extend to 2027.

Her reference case for short-term issues points to a 3.1% global economic contraction, but she said that scenario "is further and further behind in the rear-view mirror," Reuters reported.

Speaking alongside Georgieva at a conference hosted by the Milken Institute in California, Chevron Chief Executive Officer Mike Worth said the economies of Asia will be the first to contract because of the conflict given their heavy dependence on Gulf crude oil supplies.

"We will start to see physical shortages," he said.

Houston, Texas-based Chevron has a small footprint in the Middle East, with much of its overseas operations focused on East Asian economies such as Kazakhstan. It's the operator of the Leviathan natural gas field off the coast of Israel, among the largest in the world.

Key Takeaways

• Don't let the decline in oil prices fool you.
• Maersk cautious still about navigation in the Strait of Hormuz.

---

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).