00:00Stephen Shork is principal and editor at the Shork Group, a leading provider of energy market intelligence.
00:07Great to have you on Global Business, Stuart.
00:09Now, roughly a fifth of the world's oil passes through the Strait of Hormuz.
00:13If that artery is even partially blocked, how quickly could that translate into a genuine global energy shock?
00:23Well, we're essentially sending out a blockade at this moment, not necessarily military blockade,
00:28but certainly with maritime insurers reticent to insure cargoes going through the straits, very few cargos are passing right now.
00:36So for all intents and purposes, we are seeing our blockade.
00:39And of course, it's having a deleterious impact on price.
00:43What we saw over the weekend or on Sunday night was oil prices.
00:46We'll use our markers, the Ice Brent market, which is a global seaborne market or the marker for that, and
00:53the Non-Mix WTI contract here in the U.S.
00:56Both of those contracts surged to the doorstep of $120 a barrel on Sunday night on this news, on news
01:03that Israel went after Iran's oil supplies.
01:07So a tremendous amount of fear.
01:09So to your point, with one-fifth of seaborne oil trade essentially locked up in the Pershing off at this
01:18point, certainly having an impact, more so in the Asia markets and in the Western markets.
01:24But in total, it is having, of course, a major hit to volatility in this market.
01:30And it's not just about oil tankers.
01:32Gas, fertilizer, wider shipping routes depend on the same corridor.
01:37Do you think the markets are struggling to understand the real risk?
01:43Yeah, so what we've seen with the risk now, when we look at historical volatility and the spread between historical
01:48volatility and implied volatility,
01:51implied volatility is the variance that options traders are giving or assigning to the amount of risk they're willing to
01:58take on at a given options price.
02:00So when we look at how they are pricing implied against what we've seen recently, historical volatility, we translate back
02:08that into a dollar per barrel.
02:10What we've seen over the past week or since the start of Epic Fury is about a $5 to $6
02:15premium priced into the market, on the front of the market.
02:19So that is to say that we had a general geopolitical risk of about $2 prior to Epic Fury.
02:25At this point, that volatility or that risk premium is now upwards of $7 a barrel.
02:31So clearly, the market is moving to the side and erring on the side of caution and expecting further volatility,
02:38both up and down, as we navigate the current war.
02:44Stephen Shock at Energy Market Intelligence Group, the Short Group.
02:48Thank you very much indeed.
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