The Middle East war is creating the biggest supply disruption in the history of the oil market as flows of about 20 million barrels per day of crude and products through the Strait of Hormuz have crashed to a trickle, the International Energy Agency said on Thursday.
With limited capacity available to bypass the crucial waterway and storage filling up, Gulf countries have slashed their combined oil production by at least 10 million bpd, the IEA said in its monthly Oil Market Report.
“In the absence of a rapid resumption of shipping flows, supply losses are set to increase,” said the agency, which on Wednesday announced the biggest-ever coordinated emergency release of oil stocks, of 400 million barrels, from reserves.
Just last week, IEA Executive Director Fatih Birol said that “There is plenty of oil, we have no oil shortage.”
“There is a huge surplus in the market,” Birol commented, but that was a week ago.
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Now the agency is coordinating the biggest emergency release of oil stocks since it was created in the 1970s during the Arab oil embargo.
In the wake of the Middle East war, global oil supply is set to plunge by 8 million bpd in March, with curtailments in the Middle East partly offset by higher output from non-OPEC+ producers, Kazakhstan, and Russia, the agency said.
The emergency stock release wouldn’t be able to offset a prolonged supply loss, it added.
“The coordinated emergency stock release provides a significant and welcome buffer, but in the absence of a swift resolution to the conflict, it remains a stop-gap measure,” the IEA said today.
“The ultimate impact on oil and gas markets and the broader economy from the conflict will depend not only on the intensity of military attacks and any damage to energy assets, but also, crucially, on the duration of disruptions to shipping through the Strait of Hormuz.”
By Tsvetana Paraskova for Oilprice.com
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