Oil: Supply risks and reserves shape outlook – Commerzbank

Commerzbank’s Commodity Analyst Carsten Fritsch compares current Oil disruptions from the Strait of Hormuz blockade with the 1970s oil crises, highlighting record supply shortfalls and potential demand and supply adjustments over time. He notes that OECD and Chinese emergency reserves could cover several months, but warns that a prolonged disruption would likely keep Oil prices elevated as market nervousness persists.

Strait of Hormuz crisis and supply risks

"In its latest monthly report, the International Energy Agency described the current supply shortfalls as the largest in history. According to the IEA’s assessment, crude oil production in the Gulf region has already had to be reduced by more than 8 million barrels per day due to limited export capacity. Added to this are cuts of 2 million barrels per day in condensates and natural gas liquids (NGLs)."

"Production outages in the region are estimated to amount to 7–10 million barrels per day, which represents up to 10% of global supply. Similar supply shortfalls have only occurred during the oil crises of the 1970s."

"Unlike in the 1970s, industrialised nations now have emergency reserves, established as a lesson learnt from the shock of that era. The state-controlled emergency reserves of OECD countries would cover the loss of oil supplies from the Middle East for a good three months if all alternative supply routes were exhausted."

"This means there is no immediate threat of a supply shortage. Nevertheless, should oil supplies through the Strait of Hormuz be disrupted for a prolonged period, nervousness on the oil market would continue to rise, and with it, oil prices."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)