The world’s oil markets have quietly endured one of the biggest supply shocks in recent history, and Saudi Aramco has now quantified the pain. The kingdom’s CEO estimates the world has lost in excess of 2.6 billion barrels of oil since the US and Israel declared war on Iran in February. That’s close to a month’s worth of global crude output, a deficit that could fundamentally alter energy markets.
Amin Nasser introduced the briefing on Tuesday, as Aramco announced its Q2 results. While the results at first glance appeared healthynet income up by 44 percent to $32.69 billion bolstered by rising prices for crude, refined products and chemicalsthe underlying message was one of restricted output and falling buffers. Total hydrocarbon production at Aramco was 9.
5 mb/d in the quarter, compared to 12.8 mb/d in the same quarter last year. But at its core, the cause of the deficit is the Strait of Hormuz. This narrow “choke point” in the Persian Gulf, which from it passed a fifth of the world’s oil, has been largely shut or tight for months. Tankers who used to cruise past would now divert, linger or give up altogether. Though Saudi Arabia was successful in hauling some of its crudes via the East-West pipeline to the Red Sea, that route got clogged too. Gulf suppliers got clobbered even worse. Nasser made it clear that the barrels are not going to be within drinking distance overnight.
‘The straits would have to be open now for 618 months, at a rate of 2.1 million barrels a day to restore the inventories, ‘ he told analysts. Before the war global inventories were already low, but have been scaled back even more to balance the markets. The buffer that once protected the consumer from wholesale fluctuation is now barely there.
The human, economic and industrial implications of that cutback are starting to become apparent. Rising prices for the cost of fuel have been passed by gas stations airlines shipping lines and car makers throughout Asia, Europe and the Americas. Save those industries which are energy-intensive, there has been increased running costs and even postponed investment around the world. For most nations, importing the lion’s share of their oil, these shocks have meant inflationary stress and squeeze on household spending.
Aramco itself has weathered the crisis relatively unscathed. While volume sales have lagged, the strategy of profiting from the high prices while reducing the volume sold somewhat eased the company out of the crisis. Off loading crude at a safe distance helped sustain supply, but Nasser was resigned about the long term. If the redirection of oil away from the Waterway continues, and if the threat to shipping further down the Bab el-Mandeb towards the Red Sea persists, the global economic effect could be long-lasting.
The figure of 2.6 billion barrel is more than just a statement. It was oil that was never produced, never loaded, never processed and never sent to its destination.
