Key Moments
- Brent crude is approaching USD100 as shipments through the Strait of Hormuz are not expected to resume early.
- OCBC strategists warn that another month of supply outages could push crude inventories toward operational lows, triggering demand destruction.
- Signs of weakening demand are already visible, including more flight cancellations, lower refinery utilization, and EU efforts to optimize jet fuel consumption.
Oil Price Spike and Stagflation Fears
OCBC strategists Sim Moh Siong and Christopher Wong report that Brent crude is moving closer to USD100, as market participants increasingly doubt that flows through the Strait of Hormuz will resume in the near term. They note that this escalation has shifted markets into what they describe as an Oil-stagflation channel, where elevated energy prices simultaneously weigh on growth prospects and fuel inflationary pressure.
The strategists emphasize that continued disruption to crude supply poses significant risks for both global growth and price stability. They underscore that the current situation is being driven by renewed geopolitical uncertainty, which is feeding directly into higher oil prices and broader macroeconomic concerns.
OCBC Strategists’ Assessment
Their assessment is encapsulated in a series of observations:
“Oil climbed on renewed geopolitical uncertainty, steering markets into the oil-stagflation channel.”
“Crude surged, with Brent nearing USD100/bbl, as an early resumption of flows through the Strait of Hormuz looks increasingly unlikely.”
“Another month of outages could push crude inventories close to operational lows, leaving demand destruction as the main rebalancing mechanism.”
“This would magnify both inflationary and growth headwinds.”
“Despite the supply shock, demand is already softening: flight cancellations are rising, refinery utilisation is falling, and the EU is exploring measures to optimise jet fuel use.”
Supply Stress and Emerging Demand Weakness
According to Sim and Wong, an additional month of disruptions to crude flows could drive inventories toward levels described as operational lows. In such a scenario, they argue that demand destruction would become the primary way for the market to rebalance, amplifying both inflationary pressures and downside risks to growth.
At the same time, they point out that demand indicators are already losing momentum. They highlight an increase in flight cancellations, reduced refinery utilization, and discussions within the European Union on measures to optimize jet fuel usage as evidence that consumption is beginning to adjust even before inventories reach critical thresholds.
Key Dynamics at a Glance
| Factor | OCBC Strategists’ Assessment |
|---|---|
| Brent crude price | Nearing USD100/bbl amid renewed geopolitical uncertainty |
| Strait of Hormuz flows | Early resumption looks increasingly unlikely |
| Crude inventories | Another month of outages could push levels close to operational lows |
| Market rebalancing mechanism | Demand destruction seen as the main adjustment channel |
| Macro impact | Magnified inflationary and growth headwinds – oil-stagflation channel |
| Demand signals | Rising flight cancellations, falling refinery utilization, EU exploring jet fuel optimization |
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