Everyone Is Watching The Wrong Hormuz Number

A Goldman Sachs executive stated that oil product flows out of the Strait of Hormuz are running at roughly 35% of pre-war levels, against approximately 70% for crude oil.

The transit numbers that get quoted are crude numbers. Crude is the thing everyone tracks, the thing officials cite, and the thing the price screen shows. It is running at seven-tenths of normal. Products are running at a third. Once you have that ratio, three things that have looked strange stop looking strange. First, the crude price. WTI in the low nineties, with a naval blockade in place and CENTCOM disclosing 92 rerouted commercial vessels, has struck a lot of people as a remarkably muted response to a remarkable disruption. It is not muted if crude is actually moving at 70% of normal. The barrel is finding its way out. Second, the diesel crack. It printed above $106 against WTI, the highest on record, and it did so on sessions when crude was rallying. A crack is the price of turning a barrel into a product. If the barrel moves at 70% and the product moves at 35%, the spread between them is the price of that gap, and it is doing exactly what arithmetic says it should. Third, and this is the part with money in it: de-escalation does not fix these two legs equally. Reopening a strait moves ships. It does not rebuild the refining capacity taken offline in Russia by drone strikes, it does not restore US distillate inventories sitting at their lowest late-August level since 1996, and it does not repair whatever was hit at a Saudi Aramco facility this week. Crude flows recover faster than product flows because crude only needs a route, while product needs a route and a refinery. The honest complication, and it is a real one: the diesel crack has compressed for three straight sessions, falling from $106.23 to $99.21 while crude rose. That is the market pricing this asymmetry as temporary, or pricing a supply response arriving from Chinese refinery runs. Either the 35% number is stale, or the market is looking through it, or the compression is positioning unwinding after a record. This card does not claim to know which. It claims the ratio is the variable that matters and that almost nobody is quoting it.