Uche Cecil Izuora
The International Energy Agency (IEA) has issued warning raising serious oil supply hiccups as tension in the Middle East conflict continues to escalate.
The Agency said it is closely monitoring the situation in oil markets following recent developments in the conflict in the region with the escalation in hostilities affecting the Strait of Hormuz and energy infrastructure in the region increasing security of supply concerns and casting greater uncertainty over the market outlook.
Threats to the Bab el-Mandeb Strait, an increasingly important alternative shipping route for bypassing Hormuz, are adding to those concerns.
The Executive Director Fatih Birol noted that, for the moment, crude oil and gas markets have continued to benefit from several cushioning factors.
These include significant supplies from Gulf producers – notably through major efforts by Saudi Arabia and the United Arab Emirates that have continued to reach global markets via various routes.
In addition, oil producers in other regions notably the United States, Brazil, Venezuela and Kazakhstan have increased exports, helping offset some of the supply losses. On the demand side, China has played an important role in stabilising markets by reducing its crude oil imports by nearly 50% compared with pre-war levels.
Ongoing emergency stock releases by IEA Member countries continue to provide major relief to markets. Since the announcement on 11 March of the IEA collective action to make 400 million barrels of oil available to the market, around 290 million barrels have been released by IEA Member countries, with more continuing to flow to the market.
The IEA countries still hold a substantial volume of emergency stocks in reserve, including over 1 billion barrels of government-controlled stocks.
However, Dr Birol emphasised that there is no room for complacency on oil security amid the escalation in hostilities and drawing down of available commercial inventories. Refinery activity and product supplies have not picked up as much as crude deliveries, meaning that markets for refined oil products, including diesel and gasoline, are considerably tighter than those for crude. Ultimately, a full and unconditional reopening of the Strait of Hormuz remains essential to avoid a further deterioration in global energy security.
For natural gas, a large majority of the liquefied natural gas (LNG) supply lost due to the Hormuz disruptions has been offset by LNG flows from other markets, led by the United States. But further delays in resuming Gulf exports risk keeping global LNG markets tighter for longer, Dr Birol warned.