The oil market will take months to normalize even if flows through the Strait of Hormuz resumed today, as 1 billion barrels of oil have been wiped off the supply balance over the past two and a half months.
That’s the verdict on the global oil markets of Amin Nasser, chief executive officer of Saudi Arabia’s state oil giant and the world’s single largest crude oil exporter, Saudi Aramco.
“Reopening routes is not the same as normalizing a market that has been deprived of about one billion barrels of oil,” Nasser told Reuters in statements this weekend after the Saudi oil giant reported consensus-beating Q1 earnings despite the closure of the Strait of Hormuz for a full month in the first quarter.
In comments on the results, Nasser said in the Aramco press release that the company showed strong operational flexibility in re-routing exports through the East-West pipeline to the Yanbu export port on the Red Sea, which bypasses the closed-off Strait of Hormuz.
“Our East-West Pipeline, which reached its maximum capacity of 7.0 million barrels of oil per day, has proven itself to be a critical supply artery, helping to mitigate the impact of a global energy shock and providing relief to customers affected by shipping constraints in the Strait of Hormuz,” Nasser said.
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Apart from flexibility to serve customers despite the closure of the world’s biggest oil chokepoint, Nasser also touted the importance of oil and gas in global economic growth.
“Recent events have clearly demonstrated the vital contribution of oil and gas to energy security and the global economy, and are a stark reminder that reliable energy supply is critical,” Aramco’s top executive said.
The shock supply loss is draining inventories across all markets, with some regions and countries, especially in Asia, already under severe stress to procure oil supply.
The 1-billion-barrel loss, and counting, from global supply will reverberate through the oil market for months to come, even if the Strait of Hormuz opened unconditionally to free tanker traffic soon.
This prospect, however, appeared distant as of early on Monday, as U.S. President Donald Trump rejected the Iranian response to a U.S.-drafted peace proposal.
Regardless of when supply from the Middle East would normalize, the damage to the global oil market is already done. It will take months after an eventual reopening of the Strait of Hormuz for the market to stabilize, according to Aramco’s Nasser, top executives at other oil producers, and analysts.
