Global oil supply is “rapidly shrinking” because the war in Iran and the closure of the Strait of Hormuz drag into the third month, a report by the International Energy Agency says.
In April, global oil supply shrank by 1.8 million barrels a day, with the whole losses since February amounting to 12.8 million barrels of oil lost each day, the IEA’s oil market report for May said.
The lack of supply from the closure of the Strait of Hormuz is “depleting global oil inventories at a record pace,” the report warned.
The uncertainty and “conflicting signals” over whether or not the US and Iran will comply with a peace deal led to “wild swings” in benchmark oil prices in April, the report added.
“With Hormuz tanker traffic still restricted, cumulative supply losses from Gulf producers already exceed 1 billion barrels,” it said.
Nevertheless, this has coincided with other producers, like Canada, the US, Brazil, Kazakhstan, Venezuela and Russia, increasing crude oil exports, it added.
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The continued uncertainty has also hit oil demand, with Chinese, Japanese, Korean and Indian oil imports reducing sharply and “end users” also reducing their consumption of oil, the report says.
Higher jet fuel costs have also meant that folks are flying a complete lot less, with aviation activity running “below normal level.”
If a deal between Iran and the US were to be reached today, allowing the Strait of Hormuz to be opened for oil tanker traffic, the report predicts oil demand would swing back to growth by the third quarter — July, August and September — of this yr.
Nevertheless, the provision of oil “will likely be slower to recuperate.”
This may mean more price volatility, particularly ahead of the summer, when demand for energy is highest internationally.
The value of Brent crude, the worldwide benchmark for the value of oil, was well above pre-war levels on Wednesday, around US$107 per barrel.
A report published in March warned that if the Iran war drags on till June, oil prices could breach US$200 a barrel. That may translate to a price of $US7 per gallon for consumers on the pump.
“If the Strait were to remain closed for an prolonged period, prices would wish to maneuver high enough to destroy an historically great amount of world oil demand,” the report added.
If war continues for 3 more months, “that may see talk quickly turn to global recession, because the world experiences a considerable market risk off.”
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