Oil markets are running out of easy alternatives as supply risks grow

Laurence Booth, global head of markets at CMC Markets, said: “Oil markets are becoming increasingly sensitive not just to how much crude is being produced, but to how safely and reliably it can be moved around the world. With Brent still above $100, the latest attacks in the Middle East are another reminder that the pressure is building around the routes and infrastructure that keep global energy supplies moving.

“Saudi Arabia has traditionally had other export options when shipping through the Strait of Hormuz becomes more difficult. The concern now is that growing risks around the Red Sea are making some of those alternatives less straightforward as well. If several routes are under pressure at the same time, freight and insurance costs rise and disruption becomes much harder to work around, even if the oil itself is still being produced.

“Diesel is another part of the problem, with extra Russian supply unlikely to be enough on its own to make up for a wider shortage after repeated disruption to refineries and fuel exports. There is also still a question over how much Russia can actually deliver while its own refining system remains under pressure.

“Talk of an energy ceasefire between Russia and Ukraine may sound encouraging, but markets will want to see evidence that attacks on energy infrastructure are actually stopping before they take much comfort from it. If strikes on refineries and other facilities begin to ease, that would help. For now, though, the physical supply picture matters more than the diplomatic headlines.

“The result is an oil market with less room to absorb the next disruption. A single incident does not necessarily create a lasting supply shock, but when shipping routes, refineries and alternative sources of fuel are all under pressure at the same time, relatively small setbacks can have a much bigger effect on prices.

“That is why the risk remains skewed towards further volatility. What matters now is whether the oil can be refined, transported and delivered without another part of the supply chain coming under strain.”