FT: Oil traders warn market is close to running on empty as Hormuz shuts again

Pic.: indianexpress.com

Oil traders are warning that the latest flare-up of tensions in the Strait of Hormuz marks a risky new phase for the market, which is facing fresh disruption without the stockpiles that helped avert a wider economic crisis earlier in the US-Iran war, Financial Times reports.

The latest threat to Gulf crude exports comes after the International Energy Agency said on Friday that its member countries had released almost three-quarters of the planned 400mn-barrel emergency stock release that was announced in March, meaning there are only a few more weeks to go before those supplies to the market dry up.

“We’ve burned through all of the buffers we had. Everything,” said one trader. “All of that’s now gone,” he said.

Oil prices fell sharply after the ceasefire was first announced, dropping from about $100 a barrel to just above $70.

But in a sign of traders’ renewed anxiety, Brent crude surged above $87 on Tuesday, the highest level in more than a month. It traded at about $84.40 on Wednesday, up 11 per cent this week.

During the four-month closure before last month’s US-Iran agreement to reopen the strait, governments in the west and Asia pulled almost every lever available to them to ensure the supply crunch did not undermine the world economy.

The result was that Brent crude peaked at $126 a barrel in April, well below its all-time high, despite the IEA warning that the world was experiencing the worst supply disruption in history.

But traders said that if the renewed closure of the strait lasts for months, with some suspecting Iran wants to keep the pressure on US President Donald Trump ahead of the November midterm elections, it is not clear this time where the oil to make up the shortfall would come from.

Amrita Sen, director of market intelligence at Energy Aspects, said that going into the war, the oil market had roughly 400mn barrels of excess inventories, not including strategic reserves controlled by governments.

“Now we have close to nothing,” she said. “Market complacency around Hormuz flows is being severely tested.”

The IEA on Friday warned of a potential petrol and diesel supply crunch, and wholesale diesel futures in Europe have risen 14 per cent this week.

Widespread warnings about airlines potentially running out of jet fuel, as countries such as Kuwait are big suppliers, have not materialised, with refiners optimising production and airlines curbing unprofitable flights.

Global oil inventories inched higher in June, according to the IEA, but the gains pale in comparison with drawdowns over the previous three months.

The post-ceasefire decline in oil prices came amid a temporary glut, as Gulf countries rushed to empty their brimming storage tanks, funnelling millions of barrels through Hormuz so that they could free up the space they needed in order to restore production.

Adnoc, the United Arab Emirates’ state oil company, sold via tender 84mn barrels alone, according to industry publication Argus, and was running a “shuttle” system through Hormuz to meet waiting supertankers still cautious about entering the Gulf.

While Gulf suppliers have been able to reroute some of their exports — Saudi Arabia’s crude oil exports have risen to about 5mn barrels a day from its Red Sea ports, compared with the roughly 7mn b/d they sent through Hormuz before the war — others such as Iraq and Kuwait remain almost completely cut off.

“Ultimately, the market was pricing an optimistic flow trajectory that now is clearly not on the table, at least... not until we get another round of diplomacy,” said Joel Hancock, a senior commodities analyst at Natixis Bank.

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