Hello Power Up readers.
Oil prices continued their relentless fall in recent days, dropping back to pre-Iran war levels below $73 a barrel as a bearish mood seized the market. Tankers previously cooped up in the Middle East Gulf are now crossing the Strait of Hormuz every day, and the pace is accelerating as ship owners and traders rush to the exit following the interim 60-day U.S.-Iran deal signed earlier this month.
U.S. Secretary of States Chris Wright told the Reuters Global Energy Forum in New York that 20 million barrels of crude oil had exited the strait in the previous 24 hours. That amounts to around a fifth of world consumption and is roughly equivalent to pre-war levels. Shipping data suggests far lower outbound flows, though some tankers may be turning off satellite navigation systems, making them harder to track.
Regardless of the exact number, the surge of supplies out of the Gulf means that after months of extreme scarcity, the global oil market today faces a “mini glut”.
Yet the Middle East oil industry is far from returning to normal. The central section of Hormuz, where traffic used to flow before the war, remains closed due to fears of mines. Ships are instead using alternative routes running close to the coasts of Oman and Iran, which limits the volume of transit. And oilfields that were shut down during the war can’t fully restart until the flow of vessels sailing in and out of the Gulf normalizes, which could take several weeks.
At the same time, global refiners are continuing to tap oil reserves, with the U.S. total crude stocks hitting their lowest level since 1984 last week.
In short, we’re entering a chaotic period that could create a new set of headaches for the energy industry and policymakers.
What is clear is that the Iran crisis has led many oil and gas-importing nations to rethink their energy strategies. A prime example is the UK, and the political turmoil in the country – it will soon see its seventh prime minister in 10 years – should offer the new government the opportunity to review its restrictive North Sea oil and gas. More on this below.
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