Oil markets in Asia are approaching minimum operating levels. Europe will likely be next, and the United States could face shortages by July, market strategist Jeff Currie said Monday. As he assessed, dwindling global supplies also strengthen Iran's position in ongoing negotiations.
Global stockpile headlines can be misleading because much of the oil stored around the world cannot be used immediately, said Currie, chief strategy officer at Carlyle and co-chairman of Abaxx Markets.
Much of this oil is needed to keep pipelines and storage systems operating safely, leaving only a small portion available for the market.
As he assessed, Asia is already close to these so-called “minimum operating levels”. Global oil markets have been under pressure since war with Iran broke out earlier this year, after disruptions to shipping through the Strait of Hormuz sharply reduced energy exports from the Middle East.
See also: Oil prices are falling. Markets react to negotiations between the US and Iran
Bad news on oil
“The problem in Singapore is still ongoing. It has just moved from jet fuel to diesel,” Currie said.
Europe could start to feel similar strains within weeks as the current relief in US oil flows may prove temporary. Moreover, the summer travel season will begin soon.
“I would say Asia, it's already there. Europe, give it another month. And expect July to be a problem in the US.” Currie said. “Europeans think they don't have a problem because they import oil from the United States“But it can't continue like this.”
His comments follow recent warnings from the International Energy Agency that the global oil market could face a critical supply squeeze during peak oil demand in the summer, especially if exports from the Middle East do not rebound and stocks continue to decline.
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Oil stuck in the Strait of Hormuz
Currie, former global head of commodities research at Goldman Sachs, dismissed proposals such as suspending the U.S. federal gasoline tax as insufficient to address the supply crisis.
“The only way to solve this problem is to increase availability,” he said, referring to the physical supply of crude oil.
See also: This country does not care about the blockade of Hormuz. This is what he did
Ultimately, reopening the Strait of Hormuz remains the only lasting solution, although even that will take time to normalize markets, Currie said, arguing that dwindling global supplies also strengthen Iran's position in ongoing negotiations.
Source: CNBC
