Hormuz: The three pillars of rebalancing
We have now a full two months of the blockade of the world’s most important chokepoint for seaborne energy deliveries – the Strait of Hormuz. Brent and WTI have been on an upwards trend the last 10 days but are still roughly at just $110/b. How is this possible, given that initially about 18mbd of crude and products where blocked from reaching the markets?
The adjustments to supply, demand, flows and inventories are highly faceted and complex in the details, but overall the market has done its magic once again, and three pillars can be singled out as contributing most to the relatively stable market situation right now.
The MEG pipeline rerouting
The Atlantic Basin supply surge
Vortexa data shows that Chinese oil imports – crude, condensates and all products including LPG/ethane – have peaked at 16.6mbd on 12 March (28-day moving average). Recent assessments show them at least 6mbd lower, making China easily the single biggest contributor in terms of shock absorption.
What makes this even more surprising, is that onshore floating roof crude inventories have been building at a rate of 800kbd over the last two months, prolonging a 14-month stockbuilding effort that has added 230mb to storage tanks. Only that addition to stocks could fill in the loss of MEG crude for 2.5 months – once stock draws start at all.
The Chinese miracle – collapsing oil imports and growing onshore crude inventories – leads many analysts to argue that Chinese oil demand must be plummeted. Some decline is surely there, but at Vortexa we think that a combination of a broad list of factors does explain the situation, but it cannot continue for much longer.
The pipeline rerouting of MEG crude to the ports of Yanbu, Fujairah and Ceyhan has in some weeks added 5mbd of supplies to the market relative to weekly lows in early 2026, but the consistent compensation is probably somewhere closer to 4mbd.
Finally, oil exports from the Atlantic Basin and the Americas have also surged. April levels will be about 5mbd higher than January, and 4mbd higher year-on-year. The big components are crude, diesel, LPG and naphtha, with the latter two being essential to keep petchem operations in Northeast Asia somewhat afloat.
Roughly speaking, about half of these extra Atlantic Basin/Americas volumes will be from storage tanks (with US SPR releases as one relevant component), while the other half comes from extra production volumes. In other words, it is unclear whether these volumes can be sustained at the current level for much longer.
Overall, these three factors have compensated for a majority of the MEG supply loss, but the Chinese and Atlantic Basin contributions may shrink and the role of stockdraws is likely to become more explicit over coming weeks. The next round of Asian buying of Atlantic Basin crude and products may also be imminent. This means that while markets currently are reasonably well supplied, the cost of continued adjustment will increase, leading to higher oil prices, at least as long as the reopening of the Strait of the Hormuz remains a relatively distant option.
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