Global crude oil inventories are approaching a record low as the war in the Middle East continues, decimating tanker traffic via the Strait of Hormuz, Goldman Sachs commodity analysts have warned.
Even if oil flows via the chokepoint begin to improve by the end of the current month, the decline will continue, the analysts said in a note, as quoted by the Wall Street Journal. Even if the Strait of Hormuz reopens by May, the shrinking in global oil inventories will extend into May and even June, they said.
The war has so far cost Middle Eastern producers as much as 13 million barrels daily in lost output, and that is just crude oil. Exports of crude plus refined products have slumped by an estimated 20 million barrels, the head of the IEA, Fatih Birol, said earlier this month. He added that more than 80 oil and gas facilities in the region have been damaged, contributing to the severity of the situation.
Meanwhile, the longer the war continues, the more oil production will be lost. Nomura earlier this month warned that it expected an additional loss of 2.3 million barrels daily for March. Compared to a year earlier, Middle Eastern oil production is down by 9.3 million barrels daily, equal to a rather concerning supply squeeze of 57%.
Bringing this back online will take months, analysts from various outlets have warned, with some even saying normal production rates could take until the end of the year to return. According to the IEA’s Birol, return to normal production rates in the Middle East could in fact take up to two years.
The timeline for the return of supply will vary from one country to another, Birol said, adding that Iraq would need much more time to restore output to pre-war levels compared to Saudi Arabia, for example.
By Irina Slav for Oilprice.com
