Uche Cecil Izuora
Top global energy companies have said the world would soon witness a sharp increase in crude oil price, warning of its devastating consequences over the unresolved Strait of Hormuz maritime safety.
Speaking at a Bernstein conference, the industry leaders said inventory levels will soon hit rock bottom. “The buffers and the shock absorbers are being steadily drawn down,” Chevron’s Mike Wirth told attendees.
Oil prices are set to jump by an “order of magnitude” level in a few weeks, one of ExxonMobil Corp.’s top executives said May 28 at an investment bank conference, where his view was echoed by Chevron Corp. leader Mike Wirth.
Speaking at the 42nd Annual Bernstein Strategic Decisions Conference in New York, ExxonMobil senior vice-president Neil Chapman said the most important factor in the price of oil and associated products will soon be the releases of inventories that, along with distributions from countries’ strategic petroleum reserves, have mitigated some of the effects of the Iran war taking offline or shutting in about 14 million b/d of Middle East production.
“We’re approaching unheard-of inventory levels. I mean, really, really low levels,” Chapman said. “You can debate whether that’s going to hit those really low levels in two weeks or three weeks. Once you get to that point, you’ll see price shoot up. […] Most people with a model would say dated Brent will shoot up […] to $150, $160.”
A spike to those levels—which Chapman said is being signaled by indicators in ExxonMobil’s trading business—from the current roughly $90 would start to destroy demand, he added, and start a sequence that would start to push prices back down.
Addressing the Bernstein gathering shortly after Chapman, Chevron chief executive officer Wirth offered a similar assessment. Like Chapman, he pointed to reserve releases and noted that sanctioned oil from Russia, Iran, and Venezuela also has helped offset the loss of production in countries such as Kuwait and the United Arab Emirates. And he also said that “the buffers and the shock absorbers are being steadily drawn down,” which will soon show itself in prices.
“Over the next few weeks, we’re likely to see those pressures flow through more directly to physical prices,” Wirth said. “There [will be] more upward pressure that I would expect as we get into June and certainly into July.”
A major move higher would end “the Hormuz yo-yo” of news flow and ceasefire negotiation updates that has helped keep the prices of Brent crude and West Texas Intermediate in, given the circumstances, a relatively tight range over the past month and more. It’s also worth noting that the timing set out by Chapman and Wirth—both executives hedged by saying their estimates were quite rough—is more immediate than what the International Energy Agency (IEA) said last week in warning that the global oil market could enter a “Rex zone’ in July and August.