According to Energy Aspects estimates, the current disruption to the flow of oil through the Strait of Hormuz led to the loss of 13 million barrels per day, which is as much as 15%. global supply.
These are the largest losses in history, comparable only to the collapse in demand during the COVID-19 pandemic.
Market disruptions and their effects
The current situation, as we read in the Financial Times, is the opposite of the pandemic. This time, it is production shortages that are impacting demand, which is causing real oil prices, especially physical cargoes, to differ significantly from the prices of futures contracts.
Before the ceasefire in the region, the price of Brent oil in the North Sea exceeded $140. per barrel, and deliveries to Asia reached as much as $170. per barrel, taking into account high transport costs.
Refineries around the world are struggling with the profitability of producing fuels such as gasoline, diesel and aviation fuel. The prices of these products, despite the increase, do not cover the costs of raw materials.
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For example, in Europe, gasoline is currently $30. cheaper per barrel than Forties crude from the North Sea. This is four times the difference than during the worst period of the pandemic.
Asia is taking control of the market
Asian refineries, which 90 percent they rely on supplies through the Strait of Hormuzincrease purchases of oil from the Atlantic basin. Export of raw materials from the USA to Asia, which is usually 1 million barrels per day, will increase to over 2 million barrels per day in the coming months.
Such dynamics forced American refineries to reduce production, a inventories in the key Gulf Coast region could fall to a critical level of 205 million barrels by the end of May. 35 million less than a year ago.
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This situation also increases pressure on European and American refineries, that face increasing competition for raw materials. As a result, if the situation in the Strait of Hormuz does not improve, refineries in Europe and the USA will be forced to pay higher prices or adapt their purchasing models to Asian standards.
Americans also have an oil problem
The United States, despite its position as the largest oil producer, is also feeling the effects of the crisis. Asia, as the region with the greatest needsis ready to pay more for American oil, which limits the availability of the raw material on the domestic market.
As a result, to avoid shortages, U.S. policymakers may have to accept higher prices or implement market interventions such as export restrictions.
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However, it should be remembered here, as pointed out by the Financial Times, that such actions could negatively affect the operations of refineries and production on the Gulf Coast.
