Hormuz Standoff, Russian Refinery Disruptions Cloud Global Energy Outlook, RBC Says
Global energy markets are grappling with renewed volatility as security risks in the Strait of Hormuz and deepening damage to Russian refining capacity threaten to constrict supplies of both crude and refined products, RBC Capital Markets strategists said in a note Friday.RBC analysts said nearly a month after President Trump signed a memorandum of understanding with Iran to ease tensions, the agreement has unraveled, with vessels coming under renewed Iranian fire and Washington restoring a naval blockade.Commercial vessel activity, which had seen a brief, optimistic recovery following the MoU, has plummeted. RBC said a seven-day moving average of flows through the Strait has fallen to 3.9 million barrels per day, down about 4.6 million b/d from recent peaks.The International Maritime Organization also officially declared the transit route too dangerous for commercial traffic.RBC analysts said that even a potential tactical de-escalation by Washington may not restore previous traffic levels.Persistent risks from mines, drones, and missile threats, coupled with potential "tolls" imposed by Tehran, have fundamentally altered the risk profile for insurers and shippers.Further complicating the security landscape is the potential for a secondary front.The analysts said recent exchanges between Saudi forces and Houthi rebels have raised alarms, particularly amid reports that Tehran has signaled a readiness to shutter the Bab el-Mandeb Strait.RBC said that the closure of the Bab el-Mandeb Strait would threaten an additional 4 million b/d of Saudi exports, a scenario that would trigger a sharp shift in market sentiment.Meanwhile, in Europe, the intensifying conflict between Ukraine and Russia is exacting a heavy toll on Moscow's energy sector. Ukrainian strikes on Russian energy infrastructure have pushed damaged refinery capacity to an estimated 4 million b/d.RBC said that data for June shows Russian refinery intake falling to 3.43 million b/d, the lowest level on record, while crude exports surged to 5.47 million b/d, the highest since October 2019.Faced with domestic supply concerns, Russia has expanded its export bans to include diesel, a move expected to cut July clean product exports by about 350,000 b/d.The drop in refined product exports comes at a precarious time for global inventories, which remain below their five-year averages for gasoline, diesel, and jet fuel.RBC analysts suggest this will tighten balances for key importers such as Turkey and Brazil, likely forcing those nations to compete for limited alternate supplies, potentially drawing exports away from Europe.
