To The Moon

5.1 Crude/Brent

The global crude oil market is currently grappling with a high-stakes escalation of the conflict in the Middle East, which has entered its fifth week with no sign of abating (Bloomberg). Brent crude has surged near $116 per barrel, reflecting a year-to-date gain of approximately 90% as the war between the US, Israel, and Iran upends global energy stability (Bloomberg). A significant new development is the official entry of Iran-backed Houthi militants into the conflict, having launched ballistic missiles at Israel and threatening to block the Bab el-Mandeb Strait (Sparta). President Donald Trump has intensified his rhetoric, stating a preference to "take the oil" in Iran and suggesting a potential seizure of the strategic Kharg Island export hub (Financial Times/Bloomberg). Kharg Island is critical to Iran's economy, handling over 90% of its crude exports, and its seizure would represent a profound escalation into an occupation phase (Argus). Meanwhile, the US is deploying thousands of additional troops, including units from the 82nd Airborne and Marine Expeditionary Units, fanning fears of a risky ground invasion (Bloomberg/Sparta).

Supply concerns are further exacerbated by the continued de facto closure of the Strait of Hormuz, where Iran has reportedly begun implementing a "toll booth" system, charging tankers up to $2 million for safe passage (Sparta). While some traffic has picked up—with at least 20 vessels crossing since late March—this remains a fraction of pre-war levels and is largely restricted to vessels from "friendly" nations like China and Russia (Argus). Outside of the Middle East, a second front in the energy war has intensified as Ukrainian drone strikes target Russian oil infrastructure (Sparta). Recent attacks have hit the Baltic ports of Ust-Luga and Primorsk, with reports indicating that up to 60% of Ust-Luga’s capacity may be degraded, forcing a halt in crude shipments from the terminal (Argus/Sparta). This quiet dismantling of Russian export capacity is putting additional pressure on Atlantic Basin balances, even as markets remain hyper-focused on the Persian Gulf (Sparta).

5.3 Naphtha

Asian naphtha markets are experiencing significant volatility and upward pressure due to a combination of high crude prices and acute supply tightness from the Middle East (RIM). Benchmark open-spec naphtha prices in Japan rose by over $64 per metric ton, tracking the rally in Brent futures (RIM). The market is being heavily supported by a supply vacuum created by the effective closure of the Strait of Hormuz, which has led to a ban on naphtha exports by the South Korean government to prioritize domestic demand (RIM/Sparta). In South Korea and Taiwan, refinery operational rates are expected to fall as crude shortages intensify, with one major South Korean firm already reducing crude distillation unit rates to 50% (RIM). In Japan, pipeline supply from refineries to naphtha crackers has also begun to decline, leading to concerns that several crackers may have to defer their restarts from regular maintenance (RIM).

Despite the tight environment, some term contracts are being filled by cargoes from Europe and the US, though these are insufficient to fully offset the loss of Middle Eastern volumes (RIM). The market remains in a sharp backwardation, with the H1 May/H1 Jun spread widening as prompt availability becomes increasingly elusive (RIM). Platts assessed the CFR Japan naphtha marker significantly higher, taking into account bids for May delivery that reflect a substantial premium over benchmark quotations (Platts). In the US, naphtha exports are being drawn away from the domestic blending pool to satisfy Asian demand, creating a ripple effect that is driving up blending costs in the US Gulf Coast (Argus). Furthermore, the US EPA’s move to allow a single national gasoline pool (CBOB) could dramatically increase domestic naphtha consumption, further straining a global market that is already at crisis levels (Sparta).

5.5 LPG/NGLs

The LPG market is witnessing a sharp rise in prices for both propane and butane, driven by the broader energy crisis and surging crude oil futures (RIM). In the Asian refrigerated market, prices for April and May delivery into China and Japan have climbed significantly, with the Japan index for propane rising by nearly $40 per metric ton (RIM/Platts). The Middle East remains the focal point of tension, with Saudi Arabia’s Yanbu terminal seeing strong bidding activity even as shipowners remain hesitant to charter vessels due to Houthi threats in the Red Sea (RIM). Iran’s formal legislation to impose fees in the Strait of Hormuz is another critical development, threatening to permanently increase the cost of Gulf exports (Bloomberg). Despite the risks, some VLGCs have successfully transited the strait under Indian Navy escort, providing a vital, though limited, lifeline for LPG supplies to India (Platts).

In the US, Gulf Coast propane prices have slipped slightly at the start of the week despite rising futures, as market participants weigh global shipping uncertainties (Platts). High auction prices for Panama Canal transit slots remain a bottleneck, with one slot recently awarded at nearly $950,000 (RIM). This has led to some players rushing to secure passage as the netback from Asia remains attractive but highly volatile.

5.7 Gasoline/Mogas

The gasoline market is currently at its tightest level in several years, with US Gulf Coast conventional 87 prices hitting highs not seen since July 2022 (Argus). This rally is fueled by a combination of surging crude futures and increased demand for blending components, as naphtha becomes increasingly scarce (Argus). The closure of the Strait of Hormuz has constrained global naphtha trade, forcing the US to export more of the feedstock and leaving domestic blenders in a difficult position (Argus). Regional stockpiles in the US have shrunk to 17-week lows, exacerbated by the recent shutdown of Valero’s Port Arthur refinery following an explosion (Argus). In response to these pressures, the US EPA has issued emergency waivers to allow for increased ethanol blending (E15) through the summer to improve supply fungibility and lower costs at the pump (Argus/Sparta).

In the Asian market, gasoline sentiment has firmed as the RBOB-Brent crack strengthens (Platts). Australia has announced a temporary halving of its fuel excise and a plan to underwrite fuel imports after retail prices jumped to record levels, causing shortfalls at hundreds of gas stations (Bloomberg). Similarly, Poland has fast-tracked legislation to lower fuel taxes and cap retail margins to protect consumers from the oil shock (Argus). Despite high prices, some refiners in South Korea are considering fresh sales for April loading, as they have managed to fill their near-term commitments (RIM). However, across much of Southeast Asia, the situation remains critical, with the Philippines declaring a "national energy emergency" and scrambling for any available prompt cargoes (RIM).

5.8 Petrochemicals

The petrochemical sector is facing a severe supply-side shock as prices for basic building blocks like methanol hit four-year highs (Bloomberg). Methanol, a critical feedstock for olefins and plastics, is seeing its availability decimated as Iranian exports—which account for 50% of China’s imports—are disrupted by the ongoing war (Bloomberg). Spot prices in the US have surged to their highest since April 2022 as buyers seek any available alternatives to Middle Eastern material (Bloomberg). The broader olefins complex is also under pressure, with Asian ethylene prices more than doubling since February, and butadiene prices surging as cracker operators in the region struggle with naphtha shortages (Argus).

In South Korea, Lotte Chemical has brought forward its Yeosu cracker maintenance by several weeks, a move likely prompted by feedstock supply uncertainty following the closure of the Strait of Hormuz (Argus). Similar delays and shutdowns are reported across Japan, Thailand, and Taiwan, with facilities either extending turnarounds or reducing operating rates significantly (Argus). In China, methanol-to-olefins (MTO) facilities are currently maintaining high operation rates (80%) by using domestic coal-based methanol, though their long-term profitability is being tested (RIM). The polyolefin market remains bolstered by these upstream increases, with HDPE and LDPE film prices moving up in both China and Southeast Asia as buyers anticipate further export restrictions from major producers like South Korea (RIM).