A cracking tower stands beside the access road to the Ruwais Refinery and Petrochemical Complex operated by Abu Dhabi National Oil Company (ADNOC) in Al Ruwais, United Arab Emirates.
Bloomberg | Bloomberg | Getty Images
Geoff Currie, Carlyle’s chief strategy officer for energy pathways, said on Monday that Asian oil markets were nearing minimum utilization levels, with Europe next in line and the U.S. potentially facing supply shortages by July, underscoring the global energy shock from the Iran war.
Currie warned that key global inventory figures could be misleading because much of the oil stored around the world cannot be used immediately.
Most of that oil is needed to keep pipelines and storage systems running safely, and only a small portion is available for market. Currie told CNBC on the sidelines of the UBS Wealth Conference in Singapore that Asia is already approaching these so-called “minimum operating levels.”
Global oil markets have been under stress since the Iran war broke out earlier this year, with energy exports from the Middle East drastically reduced due to disruptions to shipping through the Strait of Hormuz.
Next will be Europe. We expect Europe to start having problems sometime after this holiday.
jeff curry
Mr. Carlyle, Chief Strategy Officer, Energy Pathways
“We’ve seen explosive prices for products. Jet fuel has fallen, but diesel is now outpacing jet fuel. So the problem here in Singapore continues. We just moved from jet to diesel,” Currie said.
The current easing in US oil flows may be temporary, and similar tensions could be seen in Europe in the coming weeks as the summer driving season begins. “For those of you in Asia, we’re there. For those of you in Europe, just wait another month or so and hope July becomes an issue in the U.S.,” Curry said.
“All the stocks that are drawn from the US SPR (Strategic Petroleum Reserve) are being exported to Europe. So the Europeans think it’s OK because all this oil is imported from the US, but this cannot continue.”
His comments came in light of the International Energy Agency’s recent warning that the global oil market could face a significant supply strain during the peak summer consumption period, especially if Middle East exports do not recover and inventories continue to fall.
IEA chief Fatih Birol warned last week that “if there is no improvement in the situation, we could enter the red zone in July or August.”
Carlyle’s Mr. Currie dismissed proposals such as suspending the U.S. federal gasoline tax as insufficient to address the underlying supply crunch.
“That doesn’t solve any problems. The only way to solve this problem is to increase the availability of molecules,” he said, referring to physical oil supplies. Currie said that although the announcement from the US SPR provided some reassurance, market prices suggest that potential supply shortages remain acute.
Crude oil prices since the beginning of the year
Currie said that ultimately reopening the Strait of Hormuz remains the only permanent solution, but market normalization will still take time, and he argued that declining global inventories are also strengthening Iran’s influence in the ongoing negotiations.
US President Donald Trump on Sunday urged his team not to rush into a deal with Iran to end the war and reopen the Strait of Hormuz.
“With each passing day, Iran’s negotiating leverage is compounding. Why? Because oil stocks and inventories continue to decline,” he said. “Just when you think you’ve won, that’s when you realize you’ve probably lost, and our bargaining position at this point is stronger than it has ever been in the last 47 years.”
