Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / How Oil Tanker Attacks Are Reshaping Global Shipping Routes
Transcript
- Lucas: U.S. crude hit ninety dollars a barrel this morning. That's the first time since early May, and the trigger is pretty straightforward — Houthi forces struck Saudi Arabian oil tankers in the Red Sea yesterday. Luna: Right, that headline from CNBC this morning — 'U.S. oil tops $90, Brent above $98 after tankers struck off Saudi Arabia.' So we're looking at a ten-dollar spread between WTI and Brent right now. Lucas: Exactly. And that spread is the first thing I want to drill into, because it tells you the market is pricing in a geographic risk differential. Brent is the international benchmark, and it's taking a bigger hit because it's more exposed to Red Sea and Middle East shipping lanes. Luna: Meanwhile WTI — U.S. crude — is up too, but less so. That makes sense if the disruption is primarily in the Eastern Hemisphere. Lucas: Yeah. And the interesting part is that this isn't just a headline shock. There's a real structural shift happening in how tankers are being routed. Lloyd's of London reported a three to five percent increase in war risk premiums for ships passing through the Red Sea just in the last 48 hours. Luna: That's not trivial. And if you're a tanker operator, that extra cost changes your calculus on whether to go through the Suez Canal or take the longer route around the Cape of Good Hope. Lucas: Exactly. And if more tankers start diverting, that adds days to transit times, which effectively reduces the supply of available tanker capacity. That pushes freight rates up across the board. Luna: So the oil price spike is partly about the physical barrels, but also about the cost of moving them. That's a double whammy. Lucas: Right. And this is where the conversation ties back to something we talk about a lot on this show — the real-world friction in supply chains. You know, if walking through the economy with us has made something click, we actually keep this show ad-free thanks to listener support. People can find us at buy me a coffee dot com slash fexingo. It's a small gesture that goes a long way in keeping this going. Luna: Absolutely. And it helps us stay independent, without any sponsor pressure. So thank you to those who do. Lucas: Okay, back to the tanker routes. The other angle here is how this flows into inflation data. We got the June CPI a few weeks ago — down slightly to 332.6 from 333.98. But breakeven inflation expectations have ticked up to 2.28 percent as of yesterday. Luna: That's the ten-year breakeven, right? Which is essentially the market's forecast for average inflation over the next decade. Lucas: Correct. And a jump of two basis points might not sound huge, but it's moving in the opposite direction of what the Fed wants to see. If energy costs stay elevated because of these shipping disruptions, it feeds into headline CPI directly through gasoline and heating oil. Luna: And if that pushes inflation expectations higher, the Fed might have to hold rates steady for longer. That's a macro effect from what looks like a very specific geopolitical event. Lucas: Exactly. And the market seems to be pricing that in — the energy sector is up nearly four percent in the last five days. XLE is at 59.20, and the oil explorers ETF, XOP, is up over six percent. Luna: So investors are rotating into energy as a hedge against both geopolitical risk and potential inflation stickiness. Lucas: Right. But let's be specific about the shipping risk itself. The key chokepoint here is the Bab el-Mandeb strait, which connects the Red Sea to the Gulf of Aden. About twelve percent of global seaborne oil passes through it. Luna: And the Houthis have shown they can target vessels there. Even if the actual damage is limited, the insurance and rerouting costs are real. Lucas: Yeah. And that's what creates the 'war risk premium' — it's not just about the barrels lost, it's about the cost of insuring against future losses. Some tanker owners are now demanding an additional five percent premium just to enter the Red Sea. Luna: That's a significant friction. So we're seeing a two-tier market — oil that stays in the Atlantic basin is relatively cheaper than oil that has to transit through the Red Sea. Lucas: Exactly. And that's why the brent wti spread has blown out to ten dollars. Historically, it's been closer to two to four dollars. The last time it was this wide was during the Russia-Ukraine shock in 2022. Luna: But this time the driver isn't sanctions on a major producer — it's a logistical bottleneck that could ease if the security situation changes. Lucas: Right. And that's the tricky part for traders — is this a temporary spike or a persistent new risk? The Houthis have been active in the Red Sea for months, but this is the first direct strike on Saudi tankers in a while. Luna: And given that the Saudis are major producers, this feels more escalatory. Could we see them respond militarily? Lucas: That's the billion-dollar question. But for now, the market is reacting to the uncertainty. And we can see it in the options market too — implied volatility for crude oil futures has jumped. Luna: So what does this mean for the average person? We're probably going to see higher prices at the pump in the next few weeks, assuming these disruptions persist. Lucas: Yeah. The national average for gasoline is already creeping up. And if refineries start paying more for crude and for transport, that gets passed through pretty quickly. Luna: Let's zoom out — are there any other commodities that are being affected by this shipping disruption besides oil? Lucas: Absolutely. The Red Sea is a major route for container ships carrying everything from electronics to clothing. But in the commodity space, we're seeing natural gas up three and a half percent in the last five days. NG futures at 2.96. Luna: Right, because some LNG tankers also go through the Red Sea. And if they have to reroute, that tightens the gas market too. Lucas: Exactly. And grain shipments — wheat, corn — some of those also transit via the Red Sea. Wheat is up nearly five percent in the last five days, at 706.50. Luna: But corn is up even more — eight point seven percent, to 488.50. That might be more about weather concerns in the U.S. Midwest, but the shipping risk doesn't help. Lucas: Right. In fact, the whole grain complex is seeing bid support because of multiple supply-side worries. But the oil tanker story is really the dominant narrative right now. Luna: It's a textbook example of how a geopolitical event cascades through commodity markets — first the direct hit on oil, then shipping costs, then inflation expectations, then broader asset allocation. Lucas: That's the lens we try to bring to this show every day. We'll be watching to see if the Saudis retaliate, if the Houthis claim more strikes, and how the tanker routing data shifts in the coming days. Luna: And whether the brent wti spread stays at ten dollars or starts to narrow. That'll tell us a lot about how the market expects this to play out. Lucas: Exactly. For now, it's a seller's market for tanker capacity and a buyer's market for certainty. On that note, we'll leave it there. Talk tomorrow. Luna: See you then.