Crude oil supply cuts are on track to reach nearly 12 million barrels per day by the end of next week, intensifying deficits in physical markets as tanker movements through a key Middle Eastern waterway face a two-week disruption, JPMorgan said in a note on Friday.
“Commercial tanker traffic remains extremely limited, with most vessels now Iranian and likely headed to China,” the bank said, adding that while cargoes leaving the Gulf before the shutdown are still arriving, new shipments have largely stopped, while supplies to Asia could run out this week, while Europe-bound flows are likely to halt next week.
Production cutbacks by major Gulf producers began after the conflict nearly two weeks ago, disrupting the Strait of Hormuz, through which one-fifth of global oil supply flows.
Meanwhile, an India-flagged oil tanker carrying gasoline to Africa exited the Strait of Hormuz, an Indian government official said on Friday.
Additionally, the U.S. issued a 30-day license permitting countries to purchase stranded Russian oil and petroleum products.
“Production shut-ins have already reached about 6.5 million bpd, roughly 1 million bpd above our earlier estimates,” JPMorgan said.
With global supply approximately 7 million bpd below demand, the bank noted that markets are contending with a severe shortage of diesel, jet fuel, LPG, and naphtha.
JPMorgan highlighted that roughly 5 million bpd of refined products typically transit the disrupted waterway, a major artery for middle distillates and petrochemical feedstocks. It added that Europe remains particularly exposed, as the region heavily depends on Middle Eastern diesel and jet fuel following its ban on Russian imports.
The bank pointed out that approximately 2 million bpd of Middle Eastern refining capacity is effectively offline due to export constraints and infrastructure attacks, tightening global supply balances almost immediately.
While refiners in the U.S., Europe, India, and Northeast Asia might increase operations to capture strong margins, JP Morgan cautioned that limited spare capacity and reduced crude supply mean most adjustments will likely result in higher product prices and firmer margins.
(Reporting by Anmol Choubey in Bengaluru Editing by Nick Zieminski)