Oil: Supply shock keeps prices elevated – NBC

National Bank of Canada analyst Ethan Currie has identified several key factors contributing to elevated oil prices, with Middle East disruptions, depleted reserves, and refined product shortages being the primary culprits. These issues have kept the West Texas Intermediate (WTI) curve high, with supply constraints ensuring a longer-term pricing environment.

Even if supply conditions improve, it will take years to rebuild inventories, leaving oil markets vulnerable to continued price pressures. While there was a slight improvement in July when traffic through the Strait of Hormuz showed signs of recovery, transit volumes have since dropped and remain below pre-war levels by up to half.

Re-routed shipments haven't fully offset the supply disruptions caused by attacks on Saudi tankers and infrastructure. Despite some volatility, longer-dated contracts suggest that the price impacts of ongoing offline/suppressed supply will persist.

The situation has worsened due to shortfalls in refined products, which have driven record-high crack spreads and inflated pump prices. Vital global supplies of gasoline and diesel from the Middle East and Russia are still disrupted, while other refining hubs are either fully utilized or struggling due to crude availability issues.

Moreover, upcoming refinery turnaround seasons could further reduce supply when it's needed most, exacerbating price increases. Even if supply were restored, it could take years for inventories to normalize, potentially meaning higher prices for an extended period. Policymakers face an increasingly pressing need to address these issues, as a stickier WTI strip suggests that higher prices may be the new norm.