The oil market is heading into what Fatih Birol calls the “red zone” this summer.
Speaking Thursday at Chatham House in London, Birol warned that rapidly falling inventories, missing Middle Eastern exports, and rising summer demand could push global oil markets into dangerous territory by July or August.
“This may be difficult and we may be entering the red zone in July-August if we don’t see some improvements,” Birol said.
And unlike some earlier warnings that felt a bit theoretical, the inventory data increasingly suggest he may actually have a point.
Birol said oil stocks are being steadily eroded while “no new oil was coming from the Middle East” just as demand begins climbing into peak travel season.
Summer is not exactly the ideal season for discovering that the world has been living off storage barrels. Reuters columnist Ron Bousso noted this week that global crude and fuel inventories fell at a pace of 5.27 million barrels per day in March and accelerated to 8.62 million barrels per day in April.
Inventories are functioning as the system’s shock absorbers. Shock absorbers, unfortunately, wear out.
Birol has not exactly been shy about the scale of the problem either. He said he considers the current disruption more severe than the oil shocks of 1973, 1979, and even the 2022 energy crisis following Russia’s invasion of Ukraine. He estimates that roughly 14 million barrels per day have disappeared from the market.
He also offered what may qualify as the least surprising statement in global energy right now: “the most important solution” remains a “full and unconditional reopening of the Strait of Hormuz.”
Although reopening Hormuz and restoring supply are not necessarily the same thing.
Tankers need repositioning. Producers need restarting. Trade flows need rebuilding.
Birol also said he had “never seen the dark and long shadow of geopolitics so dominant in the energy sector.”
On that point, even his critics may have trouble arguing.
By Julianne Geiger for Oilprice.com
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