The clock is ticking as oil markets barrel toward nightmare scenarios with the West bracing for ‘tank bottoms’ and Iran racing to delay ‘tank tops’
The West and Iran face two diametrically opposed oil market emergencies that could materialize within a few weeks.
With the Strait of Hormuz still largely closed after the United States and Israel launched a war against Iran, the oil stocks of the top oil-consuming countries are rapidly disappearing.
Frederic Lasserre, head of analysis at commodity trading giant Gunvor Group, told an industry conference in late April that if the shutdown continues for another month, oil markets will effectively be depleted and reach “tank bottoms.”
Similarly, analysts at JPMorgan said oil inventories in OECD countries will reach “operational minimums” between May 9 and May 30, “at which point price increases will become exponential rather than linear.”
At the same time, the US naval blockade has squeezed Iran’s oil exports and increased its own stockpiles, as the supply has nowhere to go. If storage capacity is maxed out and the industry reaches “tanks,” producers will be forced to drastically cut production, risking permanent damage to oil fields.
Coincidentally, Tehran also faces a similar timeline to that of the West. Officials who know Iran’s energy policy he told Bloomberg It is stated that there is a contraction interval of roughly one month at current production levels before the country’s storage capacity is exhausted. JPMorgan and Kpler made similar predictions.
However, according to Bloomberg, Iran is proactively trying to prolong the moment of truth by reducing crude oil production. Meanwhile, Iran is reportedly putting old tankers back into service to serve as floating storage and is exploring shipping supplies to China by rail.
Iran’s oil sector also has extensive experience in cutting production without damaging long-term capacity and has expressed confidence that it will overcome the US blockade.
For now, oil futures have not reached the worst-case scenario of $150-$200 per barrel. On Friday, West Texas Intermediate crude oil was hovering around $102, while Brent crude rose above $108, although physical delivery prices are higher.
Helping to cushion the effects of the supply shock, Saudi Arabia and the United Arab Emirates used alternative export routes that bypass the Strait of Hormuz. The United States, Japan, Europe and other leading economies coordinated the release of strategic reserves.
Asian countries are also placing greater trust in the United States, which recently overtook Saudi Arabia as the world’s top oil exporter. However, this increase was largely due to declines in US stocks. Crude oil and petroleum products reserves decreased by a total of 52 million barrels after four consecutive weeks of decline.
