What the Strait of Hormuz Oil Crisis Means for Inflation By Larry Benedict, editor, Trading With Larry Benedict On Wednesday, the International Energy Agency (IEA) announced an emergency release of 400 million barrels of oil to address the supply disruption caused by the Iran war. It was the IEA’s largest ever release, representing around one-third of its global strategic reserves. It was more than double what was released when Russia invaded Ukraine four years ago. News of the release tempered oil prices temporarily. But markets aren’t convinced about how things are going to play out longer-term… Those 400 million barrels equate to just four days of global consumption. And they’ll have to be replenished down the track, adding to demand-side pressure. But more importantly, until some level of normalcy returns to the Strait of Hormuz, oil prices are going to remain elevated. That has massive implications for inflation and the global economy… Is the Strait of Hormuz Really Blocked? Up until hostilities broke out, around 20 million barrels of oil traveled through the narrow Strait of Hormuz each day. That’s roughly the same as what the U.S. consumes daily. That’s slowed to a crawl… Yet even though the Strait is effectively blocked, this week Reuters reported that Iranian crude oil “has continued to flow through the Strait of Hormuz at a near-normal pace.” That’s around 1.1 to 1.5 million barrels per day. That comes despite the U.S.’s sinking of 16 minelayers and much of the Iranian naval fleet. Meanwhile, other countries’ tankers are not getting through at all – ship owners are unwilling to risk their fleets. The U.S. Navy has so far declined to accompany ships through the Strait. The Strait is just 21 miles wide at its narrowest point, so it fears that vessels and personnel would be too exposed. Plus, in the past day or so, Iran has struck multiple tankers and cargo ships further afield, broadening the field of battle. Adding to the supply block, other major oil-producing countries, including Saudi Arabia, Kuwait, and Iraq, have cut production. They have no storage facilities left to hold any more oil. On top of all that, there’s untold damage to infrastructure and production facilities across the region. The timeline for when oil production comes back online is anyone’s guess right now. That ongoing uncertainty is going to keep buffeting the oil price… Tune in to Trading With Larry Live 
Each week, Market Wizard Larry Benedict goes live to share his thoughts on what’s impacting the markets. Whether you’re a novice or expert trader, you won’t want to miss Larry’s insights and analysis. Even better, it’s free to watch. Simply visit us on YouTube at 8:30 a.m. ET, Monday through Thursday, to catch the latest. | Why Oil Prices Could Stay Elevated The oil price burst back higher this week. Brent crude futures again pierced the $100 level, with WTI crude back around $94. Markets have realized that President Trump’s “victory” declaration won’t resolve the oil issues anytime soon. There just isn’t enough spare capacity outside the Middle East to pick up the slack. Until oil is again freely moving through the Strait of Hormuz, the supply/demand curve is going to remain out of whack. With global demand steady at around 100 million barrels a day, only the supply side can solve this problem. That’s also why so far, the Israeli and U.S. forces have avoided hitting Kharg Island – the facility that handles around 90% of Iranian oil exports. Bombing or capturing it would cripple Iran economically. But it would also further reduce supply and send oil prices soaring even more. And, of course, it could lead to retaliatory strikes across other oil facilities. That’s why we can expect the oil price to keep fluctuating… In essence, it’s an asymmetrical equation. Iran doesn’t have to win the war; it only needs to avoid losing. And it can do that for as long as it continues to disrupt the Middle Eastern oil supply and the Strait of Hormuz. As traders, oil seems primed to create potential setups in the days and weeks ahead. We’ll watch closely to see how this situation evolves. And if you want to catch my next trade alert to take advantage of these market dynamics, watch my recent briefing to learn how to join me. Oil isn’t the only concerning market signal I’m seeing right now, and this could be just the beginning of our economic troubles… Happy Trading, Larry Benedict
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