The oil market's apparent balance is deceptive. It's not due to healthy supply, but rather a combination of severe, price-driven demand destruction—double the levels of the 2009 financial crisis—and large-scale inventory releases. This fragile equilibrium masks significant underlying stress.
Despite the effective closure of the Strait of Hormuz, oil and LNG flows show a dramatic divergence. Oil tanker volume has nearly doubled since March, reaching 25% of pre-war levels. In contrast, LNG vessel crossings are almost non-existent, running at a negligible 5% of their previous volume, indicating a different risk calculus or logistical reality.
With European gas storage at record lows, policymakers have lost their previous escape hatch. Last year, they could simply relax storage targets. That option is now considered non-viable, making direct government intervention—through subsidies or preferential loans—highly probable, especially in Germany, to avert a winter crisis.
Multiple factors are converging to create a bullish case for European gas (TTF) prices. These include record-low storage levels, a price structure that disincentivizes injections, slowing LNG supply growth from the US, and heightened cooling demand in Asia due to El Niño, which increases competition for LNG cargoes.