To The Moon

Geopolitical tensions have flared up once more, leading to a sharp rise in fuel oil prices at the market open today.

Over the weekend, the U.S. military's Central Command announced via social media that it had initiated strikes against targets in Iran starting at 19:15 Eastern Time on the 11th. This marks the third such action by the U.S. this week. In response, a social media account associated with Iran's Supreme Leader, Mojtaba, issued a statement vowing "revenge" for the late Supreme Leader Khamenei and for those killed in recent conflicts. Further escalating the situation, Iran's Islamic Revolutionary Guard Corps Navy announced early on the 12th that the Strait of Hormuz would be closed effective immediately, prohibiting all vessel traffic.

With these geopolitical issues heating up again, the energy and chemical sectors saw a significant surge at the opening bell. Fuel oil led the gains, with its main futures contract posting an intraday increase of over 5% and continuing to climb into the afternoon session.

From a fundamental perspective, the renewed U.S.-Iran conflict threatens to disrupt high-sulfur fuel oil supplies from the Middle East once more. Although refinery maintenance in the region is expected to decline through July and August, the immediate and uncertain closure of the Strait of Hormuz means the full release of supply will take time. Supply from Russia also faces pressure due to ongoing attacks on its refineries and ports, hindering the recovery of its high-sulfur fuel oil exports.

However, the market's upside potential may be capped in the medium term. OPEC has announced that a group of seven major oil-producing nations, led by Saudi Arabia and Russia, will increase their production target by 188,000 barrels per day. Concurrently, Saudi Arabia has cut the official selling price for its main crude grade to Asia by $11 per barrel for August. These moves have heightened market concerns about a supply glut and the potential for a price war.

Currently, the oil products market is responding to geopolitical news with relative restraint. Consequently, the absolute price rebound for fuel oil is expected to be limited, and caution is advised against chasing the rally at elevated levels.