‘Global Oil Market Market In Further Shock Over Hormuz Disruptions’

A senior research analyst at MST Marquee, Saul Kavonic, has warned that the oil market is living on borrowed time as flows through the Strait of Hormuz remain disrupted and the cushions such as stock draws and low Asian demand are running thin.

“We are living on an oil market credit card, we can’t draw stocks forever,” Kavonic told CNBC.

Large releases from reserves and China’s very low imports are no longer there to offset some of the supply lost at the Strait of Hormuz.

“All these things are allowing the market to go through these last several months, with oil only being about $100 a barrel,” the analyst said, noting that there is scope for escalation in the Middle East, which could further reduce the volumes coming out of the region.

Oil flows out of the Strait of Hormuz are at about one third of pre-war levels, according to MST Marquee’s Kavonic, who estimates that only between 5 and 7 million barrels per day (bpd) of crude oil are making it out of the Persian Gulf every day.

These flows are mostly supported by ship-to-ship (STS) transfers outside the Strait of Hormuz. Saudi Arabia has managed to offset about half of the 5 million bpd crude shipments it lost at the Red Sea port of Yanbu with increased Hormuz flows via STS offerings outside Oman and the UAE, the analyst said.

With the unresolved status of Hormuz and an unlikely diplomatic solution to the current stalemate, “all these still suggest that there is potentially room for things to get tighter and get worse before they get better,” Kavonic said.

Record stock releases led by the International Energy Agency (IEA) have depleted strategic inventories in developed economies, including in the United States, where the Strategic Petroleum Reserve (SPR) now holds the lowest level of crude oil since the early 1980s.

China, which strategically slashed its crude oil imports by about 4-5 million bpd in May and June, has started to gradually ramp up purchases, removing a significant demand-side balancing mechanism that had prevented oil prices from spiking to record highs in the spring