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The Strait of Hormuz reopened this week after the Iran-US agreement. However, the world is still not completely out of the oil crisis.
According to the report of analytics firm Kpler, in about four months of the war, the supply of 115 crore barrels of oil has disappeared from the global market. Its effect may last for months to come.
According to reports, the supply of oil from the Middle East almost stopped during the war. Because of this, the world’s strategic and commercial oil reserves have decreased rapidly. In the last few months, 190 million barrels of oil have been removed from the stock.
The International Energy Agency’s strategic reserves have fallen to their lowest level since 1990, while America’s emergency reserves are at a 43-year low. US President Donald Trump said during the G7 meeting in Versailles on Wednesday that if we did not end the war, our reserves would have been exhausted in about four weeks.
Trump signed the deal with Iran on June 18. During this, he said that if Hormuz had not opened, the world could have faced economic devastation.
Oil became cheaper after ceasefire
The oil market heaved a sigh of relief with the news of the US-Iran agreement. Brent crude, which reached $126 per barrel during the war, has now fallen below $80. But this drop in prices does not tell the whole story.
According to the report, even after the opening of the Strait of Hormuz, the oil supply will not return to normal immediately. First, landmines will have to be removed from sea routes.
After this, it will take time to return the empty tankers, increase oil production and get the supply chain back on track. Experts associated with the oil industry believe that it may take several months for the entire system to become normal. Till then the world will have to survive with the help of existing oil reserves.
Helima Croft of RBC Capital Markets said the market is overly excited. According to him, it would be too early to assume that the crisis is over, because major challenges still remain in bringing the oil supply back to normal level.
Many experts still hope for relief
Jay Hatfield, CEO of Infrastructure Capital Advisors, believes that OPEC member countries, which are facing cash crunch, are ready to increase production. This will bring additional supply into the market and may put pressure on prices.
Macquarie Group’s Global Oil and Gas Strategist Vikas Dwivedi said that before the war started, the world had a good stock of oil. For this reason, despite such a huge supply stoppage, the market was not completely shaken.
He said that the stock of diesel and petrol in America has definitely reduced, but the situation is still under control. During the crisis, refineries had to call many places to buy oil, but the picture may change in the coming weeks. Then the oil sellers themselves will reach out to the buyers.
However, experts say that it will not be easy to replace the 115 crore barrels of oil lost during the war. Even if the world produces 5 million barrels more oil per day than the demand, it will still take about a year to make up the shortfall.
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