The timing of the impending crude crisis
6 hours ago
- #energy-crisis
- #supply-disruption
- #oil-markets
- Global oil supply faces a shortfall due to the closure of the Strait of Hormuz, impacting about 20% of global supply, but prices have not reached catastrophic levels yet.
- Three factors constrain sharp crude price gains: structural adjustments like pipeline bypasses and new crude sources, global inventories providing temporary relief, and market expectations of a quick resolution to the strait's closure.
- Structural adjustments include pipeline capacities from Saudi Arabia and the UAE, offering incremental capacity of around 5.7 mb/d, and a pre-war surplus of about 0.7 mb/d from rising supply in the Americas.
- Temporary factors involve inventory drawdowns, such as a 400 million barrel emergency release from IEA members (2.5 mb/d over four months), and floating storage from Russia and Iran, which are finite buffers depleting quickly.
- By mid-July, temporary buffers will be exhausted, leading to a market adjustment of 7.1 mb/d (16% of global crude trade), potentially causing oil prices to rise substantially, with projections up to $150 per barrel based on historical elasticities.
- Oil price volatility reflects market efforts to price the duration of the closure; longer closure times worsen the supply shortfall, increasing the risk of non-linear, sharp price spikes as temporary buffers deplete.