Oil supplies are expected to tighten further in the coming weeks, even if the U.S. and Iran reach a peace deal, as it will take time for shipments from the Middle East Gulf to resume and reach global refiners.
In the meantime, oil companies are likely to keep drawing down storage inventories to meet strong summer demand.
The world has used temporary buffers – commercial stockpiles, oil in transit or held in storage at sea and emergency reserves – to offset the shock from the war in the Middle East.
The full impact of the disruption to oil supplies has yet to wash through markets and the global economy because it will be many months before Middle East production and exports return to pre-war levels, said executives from major energy companies, investment banks and market analysts.
The rapid depletion of commercial stockpiles and emergency reserves has come at a time when stockpiles typically build as refiners and retailers prepare for peak demand during the Northern Hemisphere summer.
The global energy system will soon enter peak demand in a weakened position to deal with the spike in consumption from summer driving, aviation, farming and freight.
That would stress the global energy system and extend the time it would take for oil producers and refiners to relieve supply shortages and for high fuel prices to return to pre-war levels, according to executives and analysts.
‘Unprecedented Disruption’
U.S. President Donald Trump said oil prices would fall quickly once the conflict ends, and progress on U.S.-Iran peace talks helped push Brent crude down 7.8% to $101.27 a barrel on Wednesday.
However, analysts say physical oil and fuel prices will take longer to return to pre-war levels as supply disruptions unwind, with forecasts for Brent this year now averaging $86.38 a barrel, up from about $62 in January.
Demand is also expected to stay strong as countries rebuild depleted stockpiles, with Australia announcing plans to spend $7.22 billion to boost fuel reserves and the EU considering changes to its oil storage requirements.
A Slow Recovery
Even if supply routes reopen, the global energy system will not recover quickly, executives and analysts said.
It takes on average 30 days for ships to move from the Middle East to the European Union, and 40 days to move from there to the U.S.
Meanwhile, the disruption to refining capacity in the Middle East will hamper the recovery in supply, said Willie Walsh, the head of the International Air Transport Association, with nearly two million bpd of refining capacity offline in the region. Fuel from the Middle East is key to meeting demand in Africa, Asia, and Europe.
(With inputs from Reuters)
