Crude did the polite thing on Monday. October WTI settled at $95.78, down 4.5%, a fourth straight decline, as Hormuz traffic was reported at a six-month high, according to market reports. The Journal’s front page explained why the pump may not care: the Iran war’s newest shortage isn’t crude. It’s the ships that carry it, and they’re charging a record.
Drone strikes earlier this month shut Saudi Arabia’s East-West Pipeline, the kingdom’s main bypass around Hormuz, which carried Gulf crude to the Red Sea port of Yanbu. Yanbu hasn’t loaded a crude tanker since, ship trackers told the Journal; a partial restart within days is possible, people familiar with Saudi Aramco’s operations say, though technical hurdles remain. So Saudi barrels now go through Hormuz or around Africa: Saudi-flagged ships have quit the Houthi-controlled Bab al-Mandeb, and more than a dozen have rerouted around the Cape of Good Hope at roughly $1 million extra per trip, per Windward, a detour of about two weeks.
When the freight is a quarter of the cargo
Every detour ties up a supertanker. Hiring a very large crude carrier, or VLCC, to load inside the Persian Gulf and exit Hormuz cost more than $1 million a day earlier this month, according to maritime-intelligence firm Windward — about $26 a barrel, roughly a quarter of the cargo’s value; freight is normally a rounding error. Global average VLCC earnings hit $651,107 a day on Thursday, nearly double a week earlier, per Clarksons Research. About 15% of the world’s roughly 900 VLCCs now sit off Oman doing ship-to-ship transfers, says Clarksons’ Stephen Gordon; Kpler’s Matthew Wright sees limited spare capacity there, and JPMorgan Chase’s (JPM) Natasha Kaneva says the workaround holds only as long as Iran allows it.
The weekend didn’t help: Yemen’s Houthis claimed a Saturday strike that apparently hit jet-fuel storage at Riyadh’s airport, the first direct attack on the Saudi capital in months. Energy shares fell Monday: Exxon Mobil (XOM) 3.2% to $158.30, Chevron (CVX) 2.8% to $203.67 and ConocoPhillips (COP) 3.3%, while Valero Energy (VLO), a refiner, dropped 4.8% to $393.27. Cheniere Energy (LNG) rose 2.5%.
Our read
Investments/Risk (IN04): the energy sleeve — Exxon, Chevron, ConocoPhillips, Cheniere, Valero — is in the book as an inflation hedge, and Monday is the case for leaving it alone. The desk’s stance is hold at weight: not chased at $100 crude, not added on the dip, not sold because the Nasdaq closed at a record. A hedge you trade on headlines isn’t a hedge; it’s a hobby. Watch the refiner: record shipping costs, the Journal reports, are squeezing refiners’ margins.
The planning piece is cash flow, not the crude quote. Freight and diesel land in what a retiree actually buys — fuel, heating, groceries — so a spending plan that reads Monday’s slide as the end of inflation is built on the wrong number. The Journal’s warning is that freight could keep fuel prices high even if crude falls, so assume energy inflation lingers, let inflation-linked bonds such as TIPS and I bonds carry part of that risk, and don’t reprice your life on an oil headline. You don’t wait for the first drop to find the umbrella.