Brent crude topped $100 per barrel this week after Houthi strikes on two Saudi tankers left a second oil chokepoint blocked, less than a month after analysts warned of a looming crude glut. Global refining margins have hit an all-time high, and IEA data show crude demand fell by close to 5% in Q2.
Less than a month after analysts warned of a looming glut, Brent crude topped $100 per barrel this week on reports that the Houthis had struck two Saudi tankers in the Bab el-Mandeb Strait. Saudi Arabia is using that waterway as the primary outlet for its crude amid the Iranian blockade of the Strait of Hormuz. Tankers heading for the Red Sea soon began making U-turns toward alternative routes, which take longer and cost more.
Two blocked chokepoints and a halted pipeline
Ukrainian drone strikes on the Caspian Pipeline System's terminus on the Black Sea have forced Kazakhstan to suspend most of its oil exports. The target was Novorossiysk port on Russia's Black Sea coast, the departure point for the bulk of Kazakh oil exports to world markets, and Bloomberg reported this week that tanker operators were getting nervous about sending vessels there because Ukrainian drones were also striking ships at the port.
The global oil supply picture has taken on a grim tint. The Strait of Hormuz used to see average daily oil volumes of some 20 million barrels daily, which has now slowed to a trickle, while Bab el-Mandeb had been handling between 4 and 5 million barrels daily of Saudi oil in recent weeks, according to different estimates, and now appears almost completely blocked. On top of that sits the loss of 1.7 million barrels daily in Kazakh flows to Novorossiysk.
Refining margins hit an all-time high
Refined petroleum products are a major crisis in their own right. Ole Hansen, Saxo Bank's head of commodity strategy, said in an analysis earlier this month that refined products face far fewer mitigation options than crude oil, with several Middle Eastern refineries still affected by the conflict and Russia's diesel export restrictions continuing to constrain global availability. Ukrainian forces also keep targeting Russian refineries, which has already led to a temporary ban on diesel exports. As a result, global refining margins hit an all-time high, hard evidence that global fuel markets remain very tight.
Crude demand fell by close to 5% in Q2
The crises are already hurting demand for crude and fuels. In Europe, which is short on diesel stocks, consumption fell by 5.7% in May, according to International Energy Agency data quoted by Reuters, and in China diesel consumption fell that month by 10% while gasoline demand fell by a more modest 5%.
Global crude stocks are being depleted at the same time. Vortexa analyst Mick Strautmann said earlier in July that large strategic stock releases have meaningfully depleted the buffer available for any future disruption. IEA head Fatih Birol, however, said IEA countries still hold over 1 billion barrels of government-controlled stocks, adding: "There is no room for complacency on oil security amid the escalation in hostilities".
Crude oil demand worldwide fell by close to 5% in Q2, according to IEA data, a natural result of the oil price spike caused by the war in the Middle East. In such a context the World Bank is once again revising its global growth outlooks: chief economist Indermit Gill told Reuters the institution now expects the global economy to expand by only 1.3% this year, down from 2.9% last year. That may be too good to be true if the wars hurting energy supply chains continue.
Source: Oilprice.com
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