The squeeze on crude oil and refined fuels is set to tighten, and it could take up to two years to refill global stockpiles drawn on as an emergency measure, the chief executive of the world’s biggest oil company Saudi Aramco said on Monday.
Following the start of the US-Israeli war on Iran at the end of February, Iran effectively closed the Strait of Hormuz, choking exports through one of the world’s most crucial shipping bottlenecks.
Under pressure from US President Donald Trump, the Group of Seven countries agreed on Friday to release 100 million barrels of diesel and crude oil from emergency reserves and pledged not to restrict energy exports.
“Until Hormuz fully re-opens and confidence returns, the crude reality is that pressure at both ends of the barrel will intensify. Even then, replenishing inventories while meeting demand could take up to two years,” Amin Nasser told the Energy Intelligence Forum in London.
“The system is already straining,” he said in his first in-person speech since the start of the Iran war.
WORLD HAS LOST 3 BILLION BARRELS OF OIL
Almost 3 billion barrels of oil supply have been lost since the start of the conflict, Nasser said. He also said 1 billion barrels of oil had been released from global stocks.
Refilling all inventories would equate to an extra 2 million barrels per day of demand over the next 18 months, Nasser said.
Global daily oil demand is just over 100 million bpd.
Saudi Arabia’s maximum sustainable production capacity of 12 million bpd could be made available within days, Nasser said, as its strategic reserves and flexibility in its system have remained intact.
But adding to the supply pressure, much of the remaining 6 billion barrels or so in storage is “not practically available,” Nasser said, as up to 90% is in pipelines or is needed to ensure the minimum volume for storage tanks to operate.
ARAMCO EXPLORES NEW EXPORT ROUTES
Saudi Arabia has ways to bypass the Strait of Hormuz and Nasser told the conference that Aramco was studying additional routes, as well as making use of more overseas storage to help cover short-term disruptions.
Its East-West pipeline allows Saudi Arabia to move oil to its Red Sea terminals. Nasser said that without that pipeline, Brent crude futures would have hit $200 per barrel.
On Monday, Brent futures traded around $102 per barrel, down from a high of $126 per barrel at the end of April, when nervousness about supply disruption was even higher.
From the Red Sea terminals, oil can move northbound through the Suez Canal or southbound through the Bab El-Mandeb. Saudi Arabia also has storage at the Egyptian port of Sidi Kerir.
Oil flows through Saudi Arabia’s East-West pipeline have not been interrupted, a source told Reuters on Monday, following media reports of disruption caused by hostilities between Saudi Arabia and Yemen’s Houthis.
Sources have told Reuters Saudi Arabia is considering expanding the capacity of the 7 million bpd East-West pipeline.
Nasser told the conference Aramco was meeting its customers’ requirements, and that it was working on “fourth and fifth” export routes.
“Multiple export routes, which can be adapted in real time, already reduce the risk that a single chokepoint can paralyse the system,” he said.
(Reporting by Stephanie Kelly, Shadia Nasralla, Robert Harvey and Anushree Mukherjee; Editing by Joe Bavier, Louise Heavens and Barbara Lewis)