Jefferies: Diesel Cracks Reveal the Real Oil Market Squeeze

Brent crude futures hovered near recent peaks of $90 per barrel before easing to approximately $87 early Thursday, as market participants awaited updates on the Strait of Hormuz's reopening. Tensions between the United States and Iran, combined with limited global fuel supplies, have been driving prices and raising concerns among leading energy experts about an impending supply shock.

Despite ongoing negotiations between the US and Iran, the discussions have stalled, with the Trump administration maintaining its blockade of Iranian ports and Tehran demanding compensation for war-related damage. Pakistan, which has been mediating the talks, stated that broader peace talks have hit a dead end.

President Trump, in a recent post on his Truth Social account, claimed that the USA has total control over the Strait of Hormuz and plans to keep it. This assertion appears to be the latest indication of his preference for economic warfare through sieging, even though the US military campaign has been paused. As of now, Brent crude is on track for a weekly increase of nearly 5%, given that a swift resolution to the US-Iran conflict remains uncertain, and attacks on energy infrastructure in Ukraine and Russia are exacerbating diesel and, more importantly, oil market tightness.

Samantha Dart, co-head of global commodities research at Goldman Sachs, has expressed deep worry about the global diesel-supply crunch. Saxo Markets strategist Charu Chanana also noted that elevated volatility will persist until Hormuz reopens and the outlook for production becomes more transparent. The International Energy Agency's recent report warned of a 1.8 million-barrel-a-day deficit this quarter, which is more than double its earlier estimate.

Moreover, the agency cautioned that soaring prices are starting to choke demand and projected the largest annual supply shortfall in five years.