'Quiet' Hormuz crude flow, lack of products have split oil market: TotalEnergies CEO

Crude oil is "very quietly" moving through the Strait of Hormuz at a premium of about $10/b, but products are not, leading to a "very strange" market dynamic with bearish crude and bullish fuel, TotalEnergies CEO Patrick Pouyanne said Aug. 24, while restating the company's commitment to the Middle East.

Speaking at the ONS oil conference in Stavanger, Norway, Pouyanne said TotalEnergies was probably the largest trader of liquids from Iraq and Qatar, whose exports through the vital Strait of Hormuz have been disrupted by the US-Iran war.

"In fact today crude oil is moving through the Strait of Hormuz. Very quietly, not publicly...in the night, with support," he said. "It's not easy because you need to find shipowners who accept to do it. That's not easy."

The TotalEnergies CEO said moving a VLCC through Hormuz and back costs around $20 million, equivalent to around $10/b, stressing that no fees were being paid to Iran.

"Crude oil is sold to you at $50-60/b, it's not Brent because producers are desperate to push their oil on the market," he said. "It works."

However, the refined products side is seeing a totally different dynamic, he said, with products usually moving on smaller Suezmaxes – lifting the per-barrel shipping cost too high – and Ukraine proving "super efficient" at attacking Russian refineries in recent months.

That has resulted in refined product supply drops of 3 million b/d from Hormuz and up to 3 million b/d from Russian refinery strikes, Pouyanne said.

It's a "very strange oil market where the crude oil market is completely bearish fundamentally, [it] could go down," Pouyanne said.

"You have a lack today of products, which is why you have a very bullish product market," he added. "Gasoline prices could not go lower than $4/gallon as US President Donald Trump would like, but more [likely] above $6."

Diesel cracks have surged to record highs this year, while European refiners have been scrambling to meet jet fuel and gasoline demand.

Alternative oil routes

Reflecting on the Middle East crisis, Pouyanne said TotalEnergies and the wider industry had rested on its laurels when it came to the region's reliability as a supplier of hydrocarbons.

"Since I joined the industry 25 years ago, there is always this music that Strait of Hormuz is a risk," he said. "But we didn't take it into account. We had a single point of exit."

In response, TotalEnergies plans to step up investments in alternative evacuation routes for Middle Eastern crude projects in the future.

"In my next investment, I need to put a certain amount of equity to invest in an alternate route," Pouyanne said.

He said TotalEnergies plans to become a partner in a new pipeline connecting Baghdad and Syria and the UAE's Fujairah pipeline expansion project. The Gulf state hopes to double the capacity to the key terminal that lies outside of the Strait.

The war has not dented TotalEnergies' enthusiasm for the Middle East, however, with Pouyanne saying the company would "continue to strongly invest in that region".

"It's clear it's fundamental," he said. "The best place for an oil company, the cheapest one."

Faltering LNG trust

Speaking at another ONS event later in the day, Pouyanne warned of some price-sensitive LNG buyers starting to sour on the super chilled fuel amid the ongoing price surge linked to the war in the Middle East.

"They begin to lose trust because in [20]22 we went through the roof, [and] in [20]26 we are going through the roof again," he said.

Such buyers, Pouyanne said, have eyed more coal usage instead.

Platts assessed the JKM benchmark for LNG delivered into Northeast Asia at $23.689/ million British thermal unit on Aug. 24, some 121% higher than just before the start of the Middle East war in late February.

The International Energy Agency projected in July that global gas demand would fall about 0.5% year over year, or 20 billion cubic meters, in 2026. However, the forecast assumed maritime transit through the Strait of Hormuz would fully resume in the third quarter and that LNG output at undamaged facilities in the Persian Gulf is fully restored by early fourth quarter.