August could mark a tipping point for much higher oil prices if demand rises and the Iran war supply crisis persists, an Abu Dhabi state oil company executive said on Tuesday, adding it could take a year for supply chains to recover even after flows normalise.
Transit through the Strait of Hormuz will remain partial and below pre-war levels as long as uncertainty over peace persists, Philippe Khoury, ADNOC’s executive vice president for sales and trading, told the Middle East Petroleum and Gas Conference in London.
“It’s not going to resume like a flip of a switch,” Khoury said, adding that some elements of the supply chain would take weeks to restore and others months, with a full return to pre-war conditions potentially taking until mid-2027.
NOT CLEAR HOW MUCH FURTHER DEMAND CAN SHRINK, EXEC SAYS
The Strait of Hormuz, a narrow waterway between Iran and Oman, carried around a fifth of the world’s oil supply before Tehran effectively closed it after the start of the U.S.-Israeli war on February 28.
The crisis triggered the biggest energy supply shock in history, sending prices surging and fanning fears of an economic downturn.
ADNOC CEO Sultan Al Jaber said last month there would be no full return of Hormuz flows until the first or second quarter of 2027.
Economies have been shrinking demand, and if they continue to do so, prices could stay around $100 a barrel, Khoury said. But if demand recovers and the crisis extends, August could be the tipping point for prices, he added.
It was not clear how much further demand can shrink, he said.
“I think the way we see things today, it’s difficult to predict a very bright, you know, outcome,” he said of prices.
He reiterated that the crisis has also disrupted supplies of jet fuel, liquefied petroleum gas, chemicals, fertilisers and sulphur. The Middle East normally supplies 40 to 45% of European jet fuel, he said, and those flows were being strangled.
This is the first time that even companies that have hedged jet prices will struggle to operate flights because of a lack of supply, not the cost of supply, he said.
CHINESE DEMAND SHORT OF EXPECTATIONS BUT STARTING TO PICK UP
Khoury said Chinese demand had fallen short of expectations but was starting to recover, with independent “teapot” refineries showing appetite. India had continued buying throughout the crisis and remained one of the largest spot buyers, he said.
China had initially bought large volumes of Iranian crude before the current “double blockage” of Iran’s closure of the strait combined with the U.S. counter-blockade of Iranian ports, he said.
ADNOC had managed to bring “a lot of our production” back online, and has a pipeline that can move output outside the strait, he said.
Abu Dhabi last month said ADNOC was building a second pipeline to double its crude export capacity outside the strait by 2027.
The existing pipeline can carry up to 1.8 million barrels per day of crude. ADNOC said in May 2024 its production capacity had reached 4.85 million bpd, and it produced around 3.4 million bpd before the war.
(Reporting by Robert Harvey; Writing by Yousef Saba; Editing by Sharon Singleton and Jan Harvey)