No quick relief for oil and LNG prices as S’pore, Asia face uncertain return to normal supply: Analysts

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SINGAPORE – Global financial markets may have responded with a relief rally to the two-week ceasefire deal between the United States and Iran, but prices tied to the physical movement of oil and natural gas are still stuck around their recent peaks.

Energy experts and ship-tracking firms told The Straits Times that prompt or spot delivery prices of oil and liquefied natural gas (LNG) remain largely unmoved as the ceasefire announced on April 7 (Washington time) has yet to ensure constraint-free navigation through the Strait of Hormuz, which handled a fifth of the world’s crude and LNG supply before the conflict.

That means consumers across Asia, including those in Singapore, are unlikely to get substantial relief on petrol prices at the pump, electricity tariffs or plane tickets any time soon.

The effective closure of the waterway since the start of the war on Feb 28 has meant the loss of millions of barrels of oil and an equivalent amount of LNG – most of which was meant for customers in Asia.

Global oil benchmark Brent plunged more than 13 per cent to below the US$100 per barrel level after the ceasefire was announced. But it reversed course and was up 3 per cent to US$97.62 at about 9am on April 9.

This comes after Iran said the US had breached several terms of the truce. There are also media reports that Tehran may have closed the Strait of Hormuz entirely after Israel attacked Lebanon, according to Iranian state media.

At current prices, Brent is still about 35 per cent higher than its closing price of US$72.48 on Feb 27.

But Brent is the price of futures, financially settled derivatives contracts that are for time periods of a month and more.

The global benchmark that represents the value of physical crude oil trading for prompt delivery in the open spot market is called Dated Brent, which Platts, an S&P Group company, assesses and is not publicly available.

Dated Brent is also used to benchmark natural gas piped into Singapore from neighbouring countries.

Analysts said Dated Brent is still trading just shy of US$144 per barrel, its highest level since 2008.

Similarly, the Platts Japan Korea Marker – the benchmark for spot LNG cargoes headed for Asia – is trading at around US$20 per million British thermal units, about 80 per cent higher than before the conflict began.

Mr Janiv Shah, vice-president of commodity markets at research firm Rystad Energy, said: “The ceasefire has shifted market rationale, allowing futures to reset quickly as the probability of sustained disruption declines.

“Yet this adjustment in futures does not translate into an immediate return to pre-conflict conditions, which are reflected in the relative strength of the physical market.”

Mr Shah added: “What is being observed, both in reporting and in physical premiums, is not a full reopening of the Strait of Hormuz but rather a formalisation of existing conditions, where passage remains contingent on coordination with Iran’s armed forces and subject to technical constraints.”

He was referring to news reports of Iran charging a toll of as much as US$2 million (S$2.5 million) per transit for some ships.

While most shipping companies understand that making payments to a country heavily sanctioned by the US and the European Union carries the risk of penalty, some might still prefer to get their vessels and seafarers out.

The UK-based International Maritime Organisation estimates that around 20,000 civilian seafarers remain aboard as many as 1,000 vessels in the Persian Gulf, facing dwindling supplies, fatigue and severe psychological stress.

Mr Shah said some traders have already begun to factor in selective access, fee-based transit, with Iran retaining control over who moves and who does not.

But shippers, insurers and crew still need evidence that risk has actually been reduced, not just paused, he said, adding: “Even within this two-week window, the expectation is that activity will restart in a measured manner rather than all at once.”

Industry consultants Wood Mackenzie said any delay in the restoration of shipping logistics will also constrain the recovery of an estimated 11 million barrels a day of upstream oil production that several Gulf states have shut in because of the conflict.

“A workable system of transit and shipowner confidence in the security of the transiting vessels are essential,” said Mr Alan Gelder, senior vice-president of refining, chemicals and oil markets at Wood Mackenzie.

He said this includes the availability of insurance for transiting vessels and commercial trade financing.

He said normalised export logistics will require sustained outbound vessel transits through Hormuz – making current oil on water available to the global refining market – and sustained inbound vessel transits, allowing tankers to load crude at Gulf ports.

“There also needs to be confidence in the viability of transit during and beyond the current two-week ceasefire,” Mr Gelder added.

The ceasefire may push natural gas prices down, but little has fundamentally changed regarding LNG supply so far.

However, Mr Tom Marzec-Manser, Wood Mackenzie’s natural gas analyst, said the ceasefire might allow the 14 trapped LNG-laden vessels to exit.

“But for there to be a real structural change in supply, the Ras Laffan site in Qatar would need to restart its 12 operable trains. It is unclear if QatarEnergy would consider doing this during a ceasefire, however.”

On March 18, an attack on Qatar’s Ras Laffan Industrial City set fire to a plant that accounts for a fifth of the world’s LNG supply.

LNG accounts for nearly half of Singapore’s electricity generation.

QatarEnergy said the damage to two of its LNG units will take three to five years to repair, cost the company US$20 billion (S$25.5 billion) a year in lost revenue and force it to cancel long-term contracts.

However, Wood Mackenzie estimates that other units at Ras Laffan’s North site may be able to fully restart relatively quickly.

But as with oil, it remains to be seen how quickly any ships leave the strait as visual checks by the Iranian authorities may still need to take place.

Some analysts believe that Iran retaining effective control of the strait makes the ceasefire tenuous.

Think-tank Atlantic Council’s analyst, Ms Allison Minor, said: “For Gulf countries, this dangerous new normal means Iran gets to keep a noose around their economies in perpetuity.”

Ms Priyanka Sachdeva, senior market analyst at Singapore brokerage Phillip Nova, said markets may have breathed a sigh of relief after US President Donald Trump announced a complete ceasefire.

“But investors should not mistake silence for stability,” she said.

“Iran is already framing the outcome as a victory, signalling that Washington moved closer to its 10-point negotiation framework, including protection of its nuclear ambitions – an outcome that raises deeper geopolitical questions.”