Sparse Hormuz shipping data explains oil's enduring risk premium

Newly released data on vessel movements through the Strait of Hormuz underline that the oil market has not yet received a clean bill of health.

Reuters' preliminary figures show that 10 commodity ships passed through the strait on Wednesday, compared with seven the previous day. Even so, that number is far short of the 10-day moving average, which stands at roughly 17 vessels.

One standard caution remains in effect: some vessels have their transponders turned off, so the observable tally might miss all traffic in the waterway.

Nevertheless, the data gives a rough sense of shipping traffic. In my view, that is relevant for understanding recent oil price moves.

For most of this week, markets have been attempting to account for potential advances in US-Iran diplomatic talks. Iran has stated it is still willing to negotiate, and reopening the Strait of Hormuz is included in its proposals. Yet the necessary conditions do not appear to be falling into place, since the US would need to reciprocate by lifting its naval blockade.

Regardless, vessel movement data reinforces the view that the physical supply situation remains precarious.

Brent crude has climbed back above $102 following the overnight rally. In my opinion, this is why oil is finding it hard to settle below the $100 mark.

Optimistic reports about diplomacy may strip some geopolitical premium from prices, but the shipping data indicates that genuine normalisation remains a distant prospect.