It has been clear for some weeks that the closure of the Strait of Hormuz was risking a major global shortage of oil and gas.
This risk has now been confirmed by President Trump, as the video of his G7 press conference confirms:
“We run out of reserves at about four weeks. You know, there are reserves all over the world, and we would really run out, and there’ll be a time when you wouldn’t be able to get it. It would be bedlam.”
The problem is that some critical storage is already at “tank bottoms” as the Bloomberg chart confirms:
“Inventories at Cushing, the largest commercial crude oil storage hub in the US, have fallen for eight weeks in a row and now stand at about 20 million barrels, according to government data published Wednesday.
“That’s the equivalent of less than two days of American crude production, and a level that most traders consider an operational minimum.”
The problem is that the world has lost >1bn barrels of oil since the closure began. Normally, this would have caused shortages, and higher prices:
The issue is that restarting massive oil and petrochemical plants can’t be done in 5 minutes. It’s not like turning on an electric light, as the US Energy Information Agency has warned:
“We assume that the Strait of Hormuz will remain effectively closed into early summer, with flows slowly starting to resume in Q3.
“If flows resume within this timeframe, we expect it will take until early 2027 for production and trade patterns to generally return to pre-conflict status.
“And we anticipate that some producers around the Persian Gulf will not be able to bring oil output back to pre-conflict levels before the end of 2027.”
It is therefore forecasting that OECD oil stocks will decline to just 50 days of demand by year-end. This would be the lowest level since records began in 2003.
Even TOTAL’s massive Satorp refinery, which supplies Saudi demand, will take till 2027 to come back to full rates, as TOTAL’s CEO told France’s National Assembly last week:
“Patrick Pouyanné said the 460,000-barrel-per-day SATORP refinery in Saudi Arabia is still operating at only 70% capacity after being struck by three drones in April.”
Nobody knows if the deal will hold
The Strait of Hormuz re-opens, but how quickly?
The cautious view – A “Slow, Staggered Recovery” over 4 months and beyond
Ships have finally started to move through the Strait again, as the Lloyds List chart shows, but:
“Inventory dynamics matter: true normalisation begins only when empty tankers return, allowing inventory drawdowns before production can rise
“Expected timeline from many operators: Q4 this year to Q1 next year for “normalised” Middle East output
“Gulf producers warn the path back may not balance at $80 Brent; recovery could be uneven and prolonged”
Equally important is that nobody knows what will happen in the 60 days of negotiation.
As Bloomberg note, Trump has agreed far-reaching changes in US policy towards Iran:
“That Iran should have the right to enrich uranium, be allowed to develop ballistic missiles and get access to billions of dollars in frozen funds.”
So the Senate may decide to play a part in the negotiations. It has a key role under the US Constitution:
For the moment, the good news is that the Strait is starting to reopen.
But nobody knows how the negotiations will develop. And the 60 day period takes us into the start of the US mid-term election campaign.
This adds further uncertainty to the whole process.
Source: ICIS by Paul Hodges,
