Hedgeye: Oil Futures Are Disconnected From Physical Market Amid Strait of Hormuz Disruption

Hedgeye Asset Management's R. Patrick Kent and Ryan Ricci said a down day in oil isn't the all-clear the tape suggests, arguing the top reason something falls is simply that it rose 20%-30% in a straight line, not a shift in geopolitics.
Crude remains closer to the top of its risk range than the bottom, with prediction markets putting the odds of Strait of Hormuz shipping traffic normalizing by year-end at roughly 18%. Kent said futures are disconnected from the physical market, where Brent priced across Dubai and Shanghai sits around $120-$125 a barrel — a gap he expects to close when contracts roll at month-end.
The disruption has reportedly spread beyond the Strait: the East-West pipeline is running at half capacity at best for months, Red Sea traffic runs through Houthi-controlled waters, and moving barrels on small boats escorted by U.S. destroyers adds at least $20 a barrel in incremental cost. Kent said he'd "take the under" on a 20% chance of normalization by year-end.