LIVE MARKETS-One billion barrels lost, but it could have been worse

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ONE BILLION BARRELS LOST, BUT IT COULD HAVE BEEN WORSE

It's now been over 10 weeks since the start of the Iran war and cumulative oil supply losses from Gulf producers already exceed 1 billion barrels, according to the IEA's monthly oil market report for May.

"An unprecedented supply shock," the IEA said.

So how has the market been able to cope with this?

Firstly, the market was in surplus before the war kicked off, the IEA notes, and producers and consumers have responded to the closure of the Strait of Hormuz.

On the supply side, Saudi Arabia and UAE have redirected exports away from the Strait, while producers outside of the Middle East have also pushed output higher and lifted exports, the IEA noted.

"At the same time, stocks from commercial and government strategic storage sites in consuming countries are flowing into markets to offset part of the losses," the IEA said.

"Observed global inventories, including oil on water, were drawn down by 250 mb over March and April."

On the demand side, the IEA expects global oil demand to contract by 2.4 million barrels per day in the second quarter, with the steepest losses seen in the petrochemicals sector.

Looking forward, the IEA believes the oil market will likely remain in deficit until the final quarter, even if the Strait of Hormuz gradually opens up from Q3 of this year.

"With global oil inventories already drawing at a record clip, further price volatility appears likely ahead of the peak summer demand period," they say.

Of note, UBS's daily Hormuz tracker, which attempts to track shipping through the Strait, indicated a sharp increase in oil & gas tankers crossing on Sunday and Monday.

"Preliminary data indicates ~10 crossings on average over the past couple of days," UBS said.

"The average for oil & gas tankers for May would be up to 2.6 vs. 3.0 in April and the February average of nearly 50."

(Samuel Indyk)

EARLIER ON LIVE MARKETS:

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