ANZ: A Severely Disrupted System Sets the Recovery Path - FJElite

The closure of the Strait of Hormuz imposed a system-wide shock on the oil market. The latest tracking data indicate supply suffered a significant disruption (Figure 1).

This shortfall has not been offset by new supply, but rather through a significant drawdown in inventories. Releases from the US Strategic Petroleum Reserve (SPR) amount to 66mbbl over the past two months, and weekly flow rates have been running at around 1.3mb/d. Overall, global oil stockpiles have fallen an estimated 340mbbl since the start of the conflict (equivalent to 3.8mb/d), while product inventories are now quickly moving towards operational minimums (around 20 days of cover). Refinery runs across the Middle East have reduced, and some level of demand restraint, particularly in Asia, has emerged.

What this means is the oil market is entering a recovery phase from a position of already depleted buffers and impaired physical infrastructure.