Cheap? What are you talking about? Benchmark Brent Futures Contracts currently is $95.6/bbl. Average US gas price is $4.16. But, experts in this area expected prices to be much higher. They, as a whole, overestimated the affect of the closure of the Strait of Hormuz based on supply-demand dynamics. (bbl = barrel, 42 gallons).

Forecasters were looking for the Brent crude to exceed $120/bbl if passage through the Strait continued to be blocked. Gas prices were supposed to be at least a dollar higher. They may ultimately be right, just off on the timing.

Total demand for oil worldwide is estimated to be 105 million bbl/day and about 20 million bbl/day was coming through the Strait of Hormuz, pre-war. This is a huge drop in supply and the dire forecasts really did make sense.

The forecasters say that prices should be much higher IF all other means of supplying oil to the world market were to stay the same. So, the modeling flaw was China’s decision to supply oil from their inventory instead of importing it. This is a delaying action, not a fix.

Every oil exporting country is keenly aware of the action of China and is looking for new routes for their oil. Of course, importing countries are also looking to add to inventories (very difficult at these prices) and cut oil demand. I like the comment by UAE’s energy minister, Sultan al-Jaber:

“Energy security is no longer just about your ability to continue to produce. “It is about routes, access, storage and redundancy.”

This is really the key strategy for oil exporters, in the short term, to get their crude to the worldwide market.

See link below:

Post-War Oil Trade Could Look Nothing Like It Did Before Hormuz

Stay tuned,

Dave