A month-long disruption at the Strait of Hormuz is sending shockwaves through Asia's petrochemical supply chain, with a new report from Huatai Securities quantifying the widespread operational cuts and price hikes for key fuels.
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Hormuz Strait Closure for Over 1 Month Sends Diesel Prices Soaring
A month-long disruption at the Strait of Hormuz is sending shockwaves through Asia's petrochemical supply chain, with a new report from Huatai Securities quantifying the widespread operational cuts and price hikes for key fuels.
Control over the Strait of Hormuz for more than a month has triggered widespread operational cutbacks across Asia's petrochemical industry, a Huatai Securities report showed, as a sustained oil supply disruption sends prices for diesel and jet fuel surging.
"This is, across the board, a ripple effect that is going to have far-reaching impacts in the economy and for financially-sensitive families, especially," Matt McClain, a petroleum analyst at GasBuddy, said in a recent interview.
The impact is already visible at the pump in the U.S., with the average price for a gallon of diesel in California hitting a record $7.45, according to AAA data. In Los Angeles County, regular gasoline has surpassed the $6 mark. The spike is hitting independent truck drivers directly, with one operator telling Eyewitness News his monthly diesel bill jumped from $5,000 to over $9,000.
With 20 percent of the world's oil supply passing through the strait, the blockage is more than a localized problem. The Huatai report notes that the sustained disruption threatens to squeeze margins for downstream industries from transportation to manufacturing, potentially leading to demand destruction for some chemical products and forcing a strategic realignment of Asian supply chains.
The report from Huatai Securities detailed a clear bifurcation in the market. While the cost of crude oil's primary derivatives like diesel and jet fuel has soared, the price transmission to products further down the chain, such as ethylene and propylene, has been impeded by insufficient demand. The aromatics chain, which includes products like benzene and toluene used in plastics and synthetic fibers, showed varied performance based on the demand resilience of the end products.
This disruption is creating a landscape of winners and losers. According to the analysis, Asian countries with higher strategic petroleum reserves and more access to alternative energy sources face lower immediate risks. The report specifically noted that China's risk of a complete supply chain rupture is relatively low, likely due to its significant reserves and diversified sourcing.
California Prices Reflect Global Pressure
The situation in California serves as a microcosm of the global pressure. The state's average price for regular gas now stands at $5.88, but major metropolitan areas are seeing significantly higher figures. Orange County is averaging $5.93, Riverside is at $5.84, and Ventura County is at $5.95.
McClain explained how the costs compound through the supply chain. A simple plastic container costs more to produce because of higher crude oil prices. "And oh by the way, it has to be shipped... To get the ship from Asia to here now costs more," McClain said. "Now we have to load it onto a semi tractor-trailer. Well, the diesel that you have to put into the semi tractor-trailer now costs exorbitantly more."
Even a hypothetical reopening of the Strait of Hormuz tomorrow would not bring immediate relief. McClain estimates it would take weeks for the cost of diesel to drop significantly, as the entire supply chain needs time to recalibrate. The situation is further complicated by low pre-existing supplies of home-heating oil, which were heavily used during cold snaps in other parts of the world before the strait's closure began.
The ongoing disruption will likely sustain high prices for oil derivatives, squeezing margins for downstream industries like transportation and manufacturing. It could lead to demand destruction for certain chemical products and force a strategic realignment of supply chains in Asia. Companies and countries with lower reliance or better strategic reserves may gain a competitive advantage.
