Mahmoud Ahmadinejad
سپاه پاسداران انقلاب اسلامی
The clock is ticking as oil markets barrel toward nightmare scenarios with the West bracing for ‘tank bottoms’
With the Strait of Hormuz still partly closed by the US Navy after the US and Israel launched their war against Iran, oil inventories among top consuming countries are rapidly disappearing.
Frederic Lasserre, head of analysis at commodities trading giant Gunvor Group, said at an industry conference in late April that if the closure drags on for another month, oil markets will effectively run out of stockpiles and hit “tank bottoms.”
Similarly, analysts at JPMorgan said that oil inventories in OECD countries will hit “operational minimums” sometime between May 9 and May 30, “at which point price increases become exponential rather than linear.”
At the same time, the US naval blockade is being evaded by Iran reportedly putting old tankers back into service to act as floating storage and shipping supplies through Pakistani and Indian waters to Mumbai, where eager customers await.
For now, oil futures have not reached worst-case scenarios of $150-$200 a barrel. On Friday, West Texas Intermediate hovered around $102 and Brent crude topped $108, though prices for physical delivery are higher.
US reserves of crude and oil products have dropped by a combined 52 million barrels after four consecutive weeks of declines.
Storage levels will continue to be tested because most U.S. oil producers don’t plan to pump more, even as higher prices offer the potential for big windfalls.
In a survey of oil and gas executives conducted by the Dallas Fed, which covers the prolific Permian Basin, they signaled that supply will not change much due to all the uncertainty weighing on the longer-term outlook.
“Even after nearly a month of oil above $90 per barrel, rig counts declined, signaling little confidence that prices will hold,” one respondent said. “Closing the supply gap from the Iran conflict will require greater certainty and higher 2027 future prices to incentivize additional rig and frack deployments.”
A respondent in the oilfield services sector complained that “Uncertainty is problematic in the oil and gas business, and this administration is the definition of uncertainty.” A peer echoed that remark, saying “The unpredictable nature of the current administration makes business modeling near impossible.”
Without a surge in new supply and with stockpiles running low, top oil analysts have warned that global markets are about to head off a cliff.
Paul Sankey, president of Sankey Research, recently guaranteed that the next few months “will be an ongoing, absolute disaster” even if the Strait of Hormuz reopens immediately.
Gulf states like Kuwait and Iraq that don’t have easy bypasses around the Strait of Hormuz also risk long-term damage to their oil capacity as production has been shut in during the blockade and may not be able to ramp up quickly.
Amrita Sen, founder of consultancy Energy Aspects, predicted stockpiles will be exhausted by the end of June if the war drags on. By that point, pricing will be completely out of whack.
“Essentially you can pick a number when it comes to the oil price,” she told the Financial Times. “We will just not have any buffers.”
