Oil Prices Don’t Reflect Scale of Supply Hit, Analysts Say

By Alex Longley and Grant Smith

Oil prices don’t fully reflect the largest supply disruption ever, after the Iran war effectively closed the Strait of Hormuz, some of the market’s top analysts said.

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So far, the conflict has caused the loss of a billion barrels of supply, an amount that could grow to 1.5 billion barrels if it continues, Trafigura Group’s Chief Economist Saad Rahim said at the FT Commodities Global Summit in Lausanne on Tuesday.

Frederic Lasserre, head of analysis at trader Gunvor Group, said if the war persists for another month, oil markets will hit tank bottoms — a phrase that means markets run out of stockpiles.

Brent futures have been remarkably volatile since the start of the Iran war, rallying close to US$120 a barrel before falling on the prospect of peace talks. On Tuesday they were trading close to US$95 a barrel, in part based on a belief that the conflict will end soon.

“The scale seems to be something where the market can’t actually get its head around it,” Trafigura’s Rahim said. He added that it will take time for flows to return to normal if there is a peace deal “so there is the real disconnect between perception and reality right now.”

It’s possible that oil flows through the Strait of Hormuz will never return to pre-war levels, Amrita Sen, co-founder and director of research at Energy Aspects, said on the same panel.

The consultant expects about 450 million barrels of clean products, like gasoline, to be lost to the war, she added. That forecast assumes a 50 per cent reopening of Hormuz next month.