"Approaching Unheard Of Inventory Levels": Exxon, Chevron Issue Apocalyptic Warning About What Happens Next To OilTYLER DURDEN
Just about two months ago, JPMorgan did the math on "How Long Before The World Hits Crude Oil Operational Minimum." The punchline was that while the market can hold hundreds of millions of barrels, it would still become fragile once working stocks fell too low. Like blood pressure in the human body, the issue is circulation.
Then, approximately 4 weeks later, the bank followed up this analysis with some more math, explaining "Why Hormuz Will Reopen By September... One Way Or Another." The bank calculated that of the 8.4 billion barrels in global oil inventories at the start of 2026, only 0.8 billion barrels were realistically available without pushing the system into operational stress.
Long story short (and the long story can be found here), OECD commercial stocks could fall to operational stress levels by June, and then hit the global operational floor by September if the Strait of Hormuz remains closed, assuming demand destruction stabilized at 5.5 mbd (with oil prices paradoxically dropping since the last JPM article, demand destruction has actually slowed).
Meanwhile, the biggest paradox during this period when the blocked Hormuz Strait meant that roughly 10 million barrels of oil wasn't reaching its intended destination each day, was that instead of prices going sharply higher to destroy demand, oil prices were actually dropping after peaking in late March and then again a month later, in effect incentivizing more demand. This prompted JPMorgan to published that "Something Is Off" With The Global Oil Math...
... and Goldman to follow up a few weeks later by observing that in May, global oil inventories plunged by a record 8.7 million barrels per day, with Hormuz still largely blocked.
And yet, oil prices are sharply lower in May, in no small part due to the daily market jawboning manipulation by various official and unofficial sources, who signal that an Iran deal is imminent... any minute now.
Only it isn't, and while the market may prefer to shove its head in the sand, the biggest names in the room are no longer keeping quiet.
Today, Chevron CEO Mike Wirth warned oil prices are likely to rise over the next two months as already near record low crude inventories continue to decline due to the Iran war.
“The buffers and the shock absorbers are being steadily drawn down, and the ability for the market to absorb this imbalance is drastically diminished today versus where we started,” he said at a Bernstein conference on Thursday.
“Over the next few weeks, we’re likely to see those pressures flow through more directly to physical prices and there’s more upwards pressure that I would expect as we get into June and certainly into July.”
Wirth’s comments follow a 10% fall in oil prices over the past week amid optimism that the US and Iran can agree a deal to end the three-month-long conflict that has closed the Strait of Hormuz, a narrow waterway through which a fifth of crude flows. They highlight growing concern among economists that the war’s impact on energy prices will continue to be felt for many months after any deal is agreed to end it... not that that moment is even remotely close. The conflict has removed 12mn-13mn barrels of oil a day from global markets.
The comments by Wirth echo a growing chorus of warnings from other oil executives, including the head of the United Arab Emirates state oil group Adnoc, who cautioned last week that full oil flows through the Strait of Hormuz were unlikely to return before next year even if the conflict is resolved.
“It will take at least four months to get back to 80% of pre-conflict flows, and full flows will not return before the first or even second quarter of 2027,” Adnoc chief executive Sultan al-Jaber said during an Atlantic Council event on May 21.
Echoing JPMorgan's observations, Wirth said oil prices had not risen as much as people had expected due to higher-than-normal stocks of crude prior to the outbreak of the war, releases from the US Strategic Petroleum Reserve and flows of sanctioned oil from Iran, Russia and Venezuela. But he said these stocks were now running low. One wildcard is the rapid, yet very stealthy, drain of Chinese stocks, both commercial and strategic. With 1.4 billion in China's SPR, the moment of reckoning could be delayed yet again if Beijing decides to open the floodgates.
Wirth also said the energy crisis would force governments to focus more on “an insurance policy” by building up oil reserves to insulate them from shocks such as the pandemic and wars in Iran and between Russia and Ukraine. “The likelihood that another shock is around the corner is something policymakers are going to have to bear in mind . . . how long they want to roll the dice before they refill inventories is a question that I think we’re going to see policymakers have to grapple with.”
“That’s going to put more demand into the market, which is going to put a bit of additional tension on the price,” he said.
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