The impact of the Iran war will continue for months even after any deal to restore shipping through the Strait of Hormuz, the world’s largest oil traders have warned.
Some said flows through the waterway may never return to normal.
Brent futures are trading just below $100, down sharply from highs of nearly $120 in the weeks immediately following the war, as the market watches for news on peace talks due to be held in Pakistan.
Speaking at the FT Commodities Global Summit in Lausanne, executives at some of the world’s largest oil traders warned that the rewiring of the oil market would take months even if a peace deal is agreed soon.
The market is not fully reflecting the impact of the massive supply disruption, they said, cautioning that prices will need to ratchet higher to the point of pushing the global economy toward a recession if the conflict continues.
Already, the oil market faces a guaranteed supply loss of around one billion barrels — in part because of the time it would take to revive flows once the strait reopens, according to Vitol Group Chief Executive Officer Russell Hardy.
“You need to realign the full supply chain,” said Frederic Lasserre, head of research and analysis at Gunvor Group.
“So starting with crude supply, it might take a minimum of three or four months to bring back supply to where it was before.”
The closure of the Strait of Hormuz has unleashed a chaotic but potentially lucrative period for the companies that dominate the trade of natural resources across the globe, as they scrambled to take advantage of the huge market dislocations that the industry typically thrives on.
Several also had cargoes stuck in the Persian Gulf — although Mercuria Energy Group boss Marco Dunand said his company was able to get ships out even after the war began.
Still, observable traffic through the strait has come to a near-standstill this week, with just a trickle of small vessels passing through.
Executives and analysts warned that the oil market will come under growing strain if a resolution isn’t reached soon.
According to Lasserre, if the war persists for another month, oil markets will hit “tank bottoms,” a term that means markets run out of stockpiles.
Once shipping is restored through the Strait of Hormuz, the immediate effect would be to push prices lower.
Gunvor Chief Executive Officer Gary Pedersen estimated in an interview that there are between 100 million and 150 million barrels of oil stuck in the region that could be released — “that’ll feel like an SPR release,” he said, referring to strategic government stocks.
But once that initial release has been absorbed, the reality of the longer-term impacts will hit home, traders and analysts said.
That could push prices back up over time, particularly with a seasonal demand increase over the northern hemisphere summer.
Oil refineries, even if undamaged, can take weeks to ramp up their production, and there’s little clarity on how quickly facilities that have been subject to attacks will be able to boost production.
At the same time, the International Energy Agency said earlier this month that top Middle Eastern oil producers can return about half of their shuttered fields to prewar levels within two weeks, but adding the final 20% of their output is likely to be challenging because of a loss in pressure.
“Refinery damage you can see with satellite images, et cetera,” said Amrita Sen, co-founder and director of research at Energy Aspects.
“The extent to which the subsurface is the thing that worries us the most in terms of the unknown of when you do go back and open this up.”
The reordering of the global tanker fleet is also likely to delay any return to normal flows.
Dozens of supertankers have begun sailing toward the US to pick up cargoes there, with overseas shipments surging to a record in data released last week.
However, that means that when the strait does reopen, there is likely to be a relative scarcity of vessels available to carry shipments as output resumes.
Traders and shipowners also said that there are concerns that while ships may be willing to escape the Persian Gulf, there will be a lower appetite from shipowners to send vessels back into the waterway.
About 76 supertankers capable of hauling about 2 million barrels of crude are currently sailing empty into the Atlantic Ocean, where they could pick up American oil, according to Signal Ocean data.
At the same time, benchmark earnings for supertankers from the Middle East to China are at almost $500,000 (about R8 million) a day, about nine times higher than where they were last year.
Even once shipping to the Gulf resumes, the market is likely to be rocked for a prolonged period by countries and companies seeking to rebuild inventories that have been depleted.
“You’ve eliminated all the buffer stock, and so there’s no more stock behind it, and it’s going to take quite some time for us to build up the inventory back to a suitable level,” said Gunvor Pedersen.
Some governments may seek to build higher strategic stocks than they held before the war, following the example of China, which seized on relatively low prices in recent years to increase the size of its stockpiles.
EA’s Sen said that her firm is working on the assumption that volumes of oil flowing through Hormuz will return to 50% of regular levels next month and 75% in June. But she warned that a full recovery may be distant.
“We may never return to normal,” she said.
Loading ...
