The Daily View: Don’t mistake a ceasefire for a supply surge

MARKETS have been repeatedly willing to respond to the merest hint of a deal to reopen the Strait of Hormuz and unblock the global economic gridlock that has built up.

The physical world, however, is less willing to move at political speed.

Even in the rosiest scenario, the phased 30-day reopening of the Strait of Hormuz being touted as an imminent prospect on Thursday won’t see real barrels surface until June, and refinery arrivals would trail another month behind.

Shipowners need proof that access is stable, not theoretical. Confidence, once shattered, rebuilds in increments, not announcements. The six- to eight-week lag between “safe to transit” and “flow restored” isn’t caution; it’s physics, logistics and habit.

And that’s assuming a credible, sustainable deal that restores freedom of navigation beyond the 30-day period is going to hold steady.

Recent experience suggests that best case scenarios are rarely sighted emerging from conflict.

Clearing the vessel backlog and port congestion that will emerge from any reopening will likely see at least two months of yo-yoing volatility and vessel repositioning, even if the optimists are proven right. The stop-start process, delayed by security flare-ups and sporadic closures predicted in many base case assumptions looks much, much worse, with much longer implications.

Rebalancing the energy markets in a ‘return to normal best case’ is not something that is concluded this side of Christmas. In a worst case, it’s a question of which Christmas?

Refined product flows face an acute supply challenge that will take months to alleviate as depleted inventories are replenished.

But the process of restoring fully rebalanced global logistics networks is going to be an ongoing work in progress towards whichever version of new normal the next normal turns out to be.

Richard Meade
Editor-in-chief, Lloyd’s List

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