Syz the moment

WSJ: "Persian Gulf oil exports have surpassed prewar levels, as an improvised shipping system under U.S. protection is helping tankers move oil through one of Iran’s fiercest waves of attacks in the Strait of Hormuz. Middle East oil flows, including shipments through Hormuz and alternative routes across the region, averaged more than 24 million barrels a day in the week through Oct. 18, surpassing prewar levels of 23.3 million, according to ship tracker Kpler".

Meanwhile, today's Eurostat report shows eurozone industrial production contracted another 1.1% yoy. Europe’s energy shock is becoming an industrial competitiveness crisis. European diesel prices are approaching $200 per barrel, while eurozone industrial production has contracted by another 1.1% year on year. Germany’s industrial output is already almost 10% below its 2021 level. Another energy shock is hitting an industrial base with limited room to absorb it. The transmission mechanism is clear: → Higher transportation costs. → Higher production costs. → Renewed inflationary pressure. But pricing power has limits. When businesses can no longer pass higher costs on to customers, margins compress. Production is reduced. Investment is postponed. More factories become economically unviable. This is the risk of another stagflationary shock: weaker activity alongside higher prices. For the ECB, the dilemma is increasingly difficult. Raising rates could contain inflation, but would also weaken demand, increase sovereign financing pressures and accelerate industrial decline. Europe faces a growing risk that a temporary energy shock leaves permanent damage to its industrial capacity. Source: Lukas Ekwueme @ekwufinance Bloomberg

Lufthansa is taking steps to address difficulties in sourcing kerosene at Frankfurt Airport, one of Europe’s main air traffic hubs. The German airline has put in place precautionary measures involving the loading of additional fuel on certain flights, with the aim of minimising the need to refuel upon arrival at the German airport. The decision, reported by the German newspaper *Bild*, concerns an operational strategy known as ‘tankering’: aircraft carry more fuel than is necessary for the flight they are about to undertake, so as to have a reserve available for the next flight and reduce their reliance on fuel supplies at the destination airport. Lufthansa has stated that, thanks to the measures taken, ‘no flight cancellations are currently planned’. The measures will remain in force until further notice and will be updated as the situation develops.

Despite renewed Iranian attacks, regional crude exports excluding Iran are holding at roughly 75% of pre-war levels, down from a late-September peak near 95%. Yet here’s the surprise: Average flows over October 1–10 remained above September’s average—and well above August’s. The disruption is making shipments more erratic: busy tanker crossings followed by quiet days. Kuwait is struggling most. Saudi Arabia, the UAE and Iraq are proving more resilient, with bypass routes providing crucial support. But the risks remain clear: continued attacks could disrupt both Hormuz and Red Sea traffic. The market signal to watch? Physical premiums for Middle Eastern crude have fallen to a near 2½-month low. For now, the physical market is signalling less scarcity—even as the security headlines worsen. Source: Javier Blas, Bloomberg

Daily tanker rates have surged to $1.068 million for voyages to India, $906,000 to China and $904,000 to Japan. Meanwhile, at least 10 empty very large crude carriers, alongside several Suezmax tankers, have stopped or reversed course while approaching Fujairah in the UAE amid escalating Iranian attacks. This threatens a key workaround that has helped Persian Gulf oil exports recover toward prewar levels, as shuttle tankers carry crude through the Strait of Hormuz to larger vessels waiting outside the waterway. The system is becoming harder to sustain as tanker availability tightens, ship-to-ship transfers keep vessels occupied for longer, and rising security risks make routes through the region more costly. If empty supertankers continue retreating, fewer receiving vessels could be available, forcing shuttle tankers to remain occupied longer and slowing crude shipments. The disruption comes as tanker availability is already tight, pushing shipping costs to record levels. The risk for the global economy is no longer just higher oil prices, but whether enough tankers will be willing and available to move the oil. Source: Global Markets Investor

Source: Tracy Shuchart (𝒞𝒽𝒾 )

Saudi Arabia has announced plans to expand its East–West pipeline, a critical route that bypasses the Strait of Hormuz. Its nominal capacity is 7 million barrels per day, although it is probably operating closer to 6 million after a September attack destroyed a pumping station. The immediate fix? Convert an existing natural gas pipeline to carry crude. Within 7–8 weeks, Saudi Aramco could add 1.2 million barrels per day of capacity. But the relief would be temporary: the line must return to gas service by May to supply power stations during the summer. Saudi officials have not identified the pipeline. One possibility is the old IPSA line: a 48-inch, roughly 1,500-kilometre pipeline built in the 1980s that runs largely parallel to the East–West route towards Yanbu. Saudi Arabia seized it after Iraq invaded Kuwait in 1990 and later incorporated it into its Master Gas System. That identification remains a hypothesis. The longer-term ambition is bigger: raise East–West capacity to around 10 million barrels per day within 2–3 years, mainly by upgrading pumping capacity. The strategic message is clear: Riyadh wants more of its oil exports to reach global markets without passing through Hormuz. Source: Javier Blas

Five reasons: 1. Fears of war returning 2. Rising transportation costs 3. Depletion of inventories 4. Demand recovery 5. Buying oil to hedge against inflation Source: Bloomberg, Ziad Daoud