Regardless of what happens from now on, the world finds itself confronted with a very painful energy crisis without historical precedent. Let us be as optimistic as possible and let us assume that Iran agrees as of tomorrow to allow free transit through the Strait of Hormuz, without any transit fee or restriction. Even in this extremely favorable case, normal navigation could not be restored immediately. Before traffic returns, Iran would first have to remove all the mines it has placed in the Straits, a process that could require months. After the clearance is completed, the tankers currently trapped in the Persian Gulf will need weeks to reach their destinations. At the same time, the countries of the Persian Gulf will continue to export significantly smaller quantities of oil and natural gas for a long period of time, due to the damage and destruction sustained by energy infrastructure during the war. The complete restoration and reconstruction of these facilities may take years. In the meantime, global oil and natural gas supplies will remain extremely limited for a prolonged period of time.
The best possible scenario and the much worse scenario
What was described above constitutes the best possible scenario. The reality could prove much worse. Over the last two months, global oil inventories are decreasing at the fastest rate ever recorded.
1) Global oil inventories decreased by 246 million barrels in March and April.
2) Ιn May the decrease reached the historic level of 8.7 million barrels daily.
3) The closure of the Strait of Hormuz cut off approximately 25% of the global maritime oil trade.
4) Fuel prices are rising constantly.
5) Analysts estimate that the price of gasoline in the United States could reach 5 dollars per gallon in the summer if flows are not restored.
The strategic reserves of the US are being depleted
In the United States, the Strategic Petroleum Reserve, SPR, is decreasing at record paces. The most recent weekly decrease, which concerned the week up to May 22, amounted to 9.1 million barrels. Total reserves were shaped at 365 million barrels. In the immediately preceding week, an even greater decrease had been recorded, of 9.92 million barrels, the largest in the history of the reserve. The previous historical record had been recorded in October 2022, amid the war in Ukraine. Commercial oil inventories are also decreasing rapidly. At some point the tanks will reach the minimum levels of safe operation and then, according to the article, a very serious crisis will break out. The chief economist of Capital Economics, Neil Shearing, warned that commercial inventories could reach critical low levels by the end of June. If supply conditions do not improve soon, prices could increase sharply. Warnings about shortages in Asia, Europe and the USA. The well-known energy analyst Jeff Currie argues that Asia is already very close to minimum operational inventories. According to him:
1) Europe may follow soon,
2) while the United States could find itself confronted with shortages as of July. Currie explains that the official global inventory data are misleading because a large part of the stored oil cannot be used immediately. A significant percentage is necessary for the safe operation of pipelines, tanks and other energy facilities. As a result, only a smaller part is truly available for the market.
Plans for rationing in fuels in Australia
The government of Australia seems to be preparing for more serious developments. According to documents revealed through freedom of information legislation, the imposition of a maximum daily fuel purchase limit per vehicle is being examined. The measure will restrict the quantity of fuel that each vehicle will be able to purchase within a period of 24 hours. If the Strait of Hormuz remains closed, similar measures could be adopted in other countries as well. Phenomena of rationing are already appearing in lubricants. According to the article, Nissan has begun to restrict the availability of the company's 5W-30 and 0W-20 engine lubricants. The inventories of these products have decreased by approximately 30% compared to last year. Nissan gave instructions to its dealers to allocate the existing quantities on a priority basis for:
1) repairs within warranty,
2) extended warranties,
3) vehicle recalls,
4) prepaid maintenance programs.
The greatest concern: fertilizers and food production
The author states that he is concerned even more about the global shortage of fertilizers. According to the article, the UN warns that the de facto cessation of navigation in the Strait of Hormuz could cause a global food crisis that will last for years. Approximately half of the global transit of sulfur, a basic raw material for the production of fertilizers, passes through the Straits. Due to the shortages:
1) many fertilizer companies are reducing production,
2) farmers may have lower yields,
3) and future harvests may be smaller. The richer economies are examining:
4) creation of strategic fertilizer reserves,
5) reduction of import tariffs,
6) development of domestic production. On the contrary, the poorer countries possess much fewer capabilities of adjustment.
ExxonMobil: Crude could reach even 160 dollars per barrel within the coming weeks
The senior vice president of ExxonMobil, Neil Chapman, addressed a stern warning about an explosive rise in energy prices in the coming period. Speaking at the Bernstein conference in New York on Thursday, May 28, Chapman estimated that the price of crude oil could reach even 160 dollars per barrel within the coming weeks, as global oil inventories retreat to exceptionally low levels. "We are approaching unprecedented levels of inventories. We are talking about really, really low levels. One can debate whether we will get there in two or three weeks. When this happens, then prices will skyrocket," he stated characteristically. He argued that prices have been kept relatively contained thanks to the release of strategic petroleum reserves by various countries. As he explained, commercial inventories of crude oil and refined products, gasoline, diesel and jet fuel, have decreased significantly, while the use of strategic reserves by many Western countries has contributed to the limitation of pressures on the market. Chapman warned that Brent, the basic reference index for crude oil prices, could move toward 150-160 dollars a barrel. "The fact that crude is moving between 90 and 110 dollars in recent weeks is due to a large extent to the decrease in inventories. This cannot continue indefinitely," he stressed. The price of Brent retreated from an average of 117 dollars in April to approximately 103 dollars in May, recording a significant correction in recent days following information about progress in the negotiations between the USA and Iran. Despite the correction, prices remain perceptibly higher than the levels before the start of the American-Israeli military operation against Iran at the end of February, when crude was trading near 75 dollars a barrel.
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