[US-Iran] Largest Strategic Reserve Release vs. Supply Dilemma: How to Understand the Logic of Oil Price Game
The Hormuz Strait crisis triggered by the US-Iran conflict is turning an extreme scenario that previously existed only in textbooks into reality. Martin Ratz, head of commodity research at Morgan Stanley, recently stated bluntly: This is an unprecedented supply shock, with a scale several times larger than any historical crisis.
Why is this time different?
Approximately 60 million barrels of oil are shipped globally by sea daily, with the Hormuz Strait carrying 20 million barrels of that—one-third of global seaborne supply. In the past, the largest supply disruptions in history:
- During the Russia-Ukraine war, the market merely anticipated a Russian loss of 3 million barrels per day, and Brent crude surged to $130.
- In 2008, an oversupply of 2.5 million barrels per day caused oil prices to drop from $100 to $30.
- The 1950s Suez Canal crisis, with an interruption volume accounting for about 10% of global consumption, was already a historic event.
What is being discussed now is a 20 million barrel per day interruption—more than double the Suez crisis.
Can the market self-correct? The answer is almost "no."
Facing a 20 million barrel per day shortfall, the market will certainly try to self-correct, but it will quickly find this problem almost unsolvable. Morgan Stanley itemized all available alternative solutions:
- Saudi East-West Pipeline: The biggest card, bypassing Hormuz to deliver directly to Red Sea ports, can release an additional ~4 million barrels per day.
- UAE's Fujairah Pipeline: Available capacity is only about 0.5 million barrels per day, a drop in the bucket.
- Sanctions Exemption Channels: Reviving sanctioned oil producers like Russia, piecing together ~1 million barrels per day.
- Strategic Petroleum Reserves: The IEA announced a release of 400 million barrels, but the physical release speed limit is ~2 million barrels per day.
Adding all the cards together: 400 + 50 + 100 + 200, totaling ~7.5 million barrels, while the shortfall is 20 million. The remaining 13 million barrels per day cannot be covered by any plan—this problem can only be truly solved by the end of the conflict.
How high will oil prices go?
Morgan Stanley's research reveals a counterintuitive historical pattern: oil prices do not rise linearly but leap from the normal range ($60~80) to the high-price range ($130~140). The intermediate $100~110 zone has historically been a rarely seen transitional area. High oil prices suppressing demand sounds like automatic market adjustment, but it's backed by real economic contraction.
How long will it take for the market to return to normal? Time is the most critical variable.
Martin Ratz presented two starkly different scenarios:
Resolved within days: Logistics friction is controllable, the stock market can likely "see through" this phase, sorting itself out in 1~2 months.
Lasting for weeks or more: Entering structural shortage, the $130~140 high-price range will no longer be a prediction but reality.
Morgan Stanley's core judgment: The intensity of this crisis depends on the duration of the conflict. A difference of days means a world of difference for the market's fate.
Related trading instruments for reference
Crude oil-related instruments:
$United States Oil Fund LP(USO.US) —— Directly tracks WTI crude oil futures, one-to-one mapping of oil price movements.
$Pro Ultr Bloomberg Crude Oil(UCO.US) —— Double leverage, greater elasticity.
$Exxon Mobil(XOM.US) —— Global integrated oil giant.
$Chevron(CVX.US) —— The second-largest U.S. oil company, with a balanced global layout.
$Occidental Petroleum(OXY.US) —— Heavily held by Warren Buffett, with low production costs and high sensitivity to oil prices.
$SPDR Energy Select(XLE.US) —— Covers major U.S. energy companies, the preferred tool for diversified exposure to the oil sector.
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