Source: Fortune
Summary
Energy experts warn that oil futures are disconnected from the physical market reality, and a reckoning is imminent. Paul Sankey, president of Sankey Research, notes that pre-war oil shipments have reached their destinations, and the lack of new supplies cannot be ignored. The situation is expected to deteriorate badly over the coming months, with inventory numbers getting “scary.” Sankey predicts a guaranteed disaster in the next two months, even if the Strait of Hormuz opens tomorrow.
Our Reading
The numbers tell one story. Oil futures have been soothed by hopes of peace talks between the U.S. and Iran, but the physical market reality is different. Sankey Research’s Paul Sankey points out that pre-war oil shipments have only now reached their destinations, and the lack of new supplies can no longer be ignored. The situation is expected to deteriorate badly over the coming months. Sankey’s prediction: “We’re locked into that.”
The moment of truth could come next month, with commercial inventories in OECD countries hitting “operational minimums” sometime between May 9 and May 30. After the war ends, the oil supply chain needs time to restart, with ports taking two months to reopen and tanker crews waiting two to three weeks to feel safe enough to travel through the strait again.
The conflict has already caused 1 billion barrels of supply to disappear, according to Trafigura Group Chief Economist Saad Rahim, who notes that the market can’t get its head around the scale of the problem. “There is the real disconnect between perception and reality right now.”
Author: Evan Null
