LONDON – Global oil reserves are plummeting and stocks may not recover until December 2027, with physical shortages looming in Europe by the end of this month, strategists warn.
Geoff Currie, co-chairman of the Abax Commodity Exchange, said shortages could hit Europe “any minute now” and that the severity of the ongoing supply crunch was not yet reflected in oil prices or policymakers’ statements.
Curry said Monday on CNBC’s “Squawk Box Europe” that concerns about oil supply will grow as inventories are depleted, adding that once there is a shortage, prices will become “non-linear.”
“Then you know how much someone is willing to pay for that last molecule,” Curry said.
Currie said the oil market is currently in the midst of a “shoulder month.” This is traditionally said to be the weakest period of the year-round commodity demand cycle, ending the heating season and heading into the driving season.
But as Memorial Day in the US and Spring Bank Holiday in the UK approach, demand for diesel, petrol and oil will surge. “That’s when you start feeling it,” Curry said.
“Stable makeup”
Analysts at Société Générale, led by Mike Haig, head of FIC and commodity research, said the oil market was operating with “a false sense of stability” but the underlying system remained under “severe stress”.
“Inventories are dwindling rapidly and, crucially, only a small percentage of the world’s stocks can truly be used without putting operational stress on the system,” analysts said in a note Monday.
Flows through the Strait of Hormuz, which normally accounts for about one-fifth of the world’s total oil and gas supplies, have been severely restricted since the conflict between the United States and Iran began on February 28.
Analysts at SocGen said that even if the Strait were to reopen by early June, the complex physical supply chain sequence of getting more oil online, including tanker transport, offloading, refining and distribution, would still result in delays of at least 52 days.
Brent crude oil.
The delay means millions of barrels a day remain offline, leading to further withdrawals from rapidly dwindling inventories.
“Long-term stress”
Meanwhile, SocGen said a late June reopening would result in “more severe and prolonged stress”, with physical easing postponed to late August and meaningful normalization not expected until September.
However, if the restart is delayed further, oil prices could rise towards $150 per barrel and remain high for the rest of the year.
“Even if distribution resumes, the timing delay will exacerbate inventory shortages, prolonging the squeeze into 2027 and further delaying full normalization, highlighting how sensitive the system is to small changes in the timing of reopening,” the analysts said.
Oil prices rose on Monday afternoon as negotiations between Washington and the Iranian government appeared to stall.
International benchmark Brent crude rose 1.4% to $110.73 per barrel on Monday, while U.S. West Texas Intermediate futures prices rose 1.3% to $106.86.
“Anyone who gets their hands dirty in this business is saying this is bad,” Curry said. “The Iranians want to cause pain. It’s not the oil price that’s important here. It’s the availability of oil.”
