CNBC
According to market strategist Jeff Currie, oil markets in Asia are approaching critical operational thresholds, with Europe likely to follow suit and the United States potentially facing shortages by July. These insights were shared on Monday amidst the ongoing global energy disruption attributed to the Iran war.
Currie, who serves as Carlyle's chief strategy officer of energy pathways and co-chairman of Abaxx Markets, noted that aggregate global inventory statistics can often be misleading, as a substantial portion of oil stored worldwide is not readily available for immediate use. He explained that a significant fraction of this oil is essential for the safe operation of pipelines and storage systems, leaving only a limited share accessible for market consumption. Presently, Asia is nearing what are referred to as "minimum operating levels," as articulated by Currie during an interview with CNBC at the UBS Wealth Conference held in Singapore.
The strain on global oil markets has intensified since the commencement of the Iran war earlier this year, with disruptions to shipping routes through the Strait of Hormuz severely impacting energy exports from the Middle East. "We've seen explosive prices on products. Jet fuel has come down, but diesel has now gone up above jet fuel. So, the problem here in Singapore continues. It just moved from jet to diesel," noted Currie.
Europe may also begin experiencing similar pressures in the coming weeks, as the current easing from U.S. oil supplies could be short-lived, especially with the onset of the summer driving season. Currie remarked, "I would say, Asia, you're there. Europe, give it about another month, and look for July being a problem in the U.S."
Currie highlighted that the inventories currently being drawn from the United States' Strategic Petroleum Reserve (SPR) and exported to Europe may foster a false sense of security among Europeans, who believe they are insulated from supply issues due to these imports. However, he cautioned that this influx cannot persist indefinitely.
His assessment coincides with recent alerts from the International Energy Agency (IEA), which has warned that the global oil market could experience a significant supply crisis during the peak summer consumption period, particularly if oil exports from the Middle East do not recover and stockpiles continue to deplete. IEA chief Fatih Birol expressed concern last week, stating, "We may be entering the red zone in July or August if we don't see that there are some improvements in the situation."
Currie, previously the global head of commodities research at Goldman Sachs, rejected suggestions such as suspending the U.S. federal gasoline tax, labeling them as inadequate solutions to the fundamental supply issues at hand. "That doesn't solve any of the problems. The only way you solve this problem is to increase the availability of molecules," he explained, emphasizing the importance of physical oil supply. While the release from the U.S. SPR has provided some temporary relief, Currie indicated that market prices suggest that underlying shortages are still significant.
In conclusion, Currie underscored that the reopening of the Strait of Hormuz represents the only sustainable solution to the current crisis, although this process would take time to stabilize markets. He further argued that diminishing global inventories are enhancing Iran's position in ongoing negotiations. "Every day that goes by, Iran's negotiating leverage compounds. Why? Because inventories of oil continue to drop," Currie asserted. "The minute you think you won, that's exactly when you know you probably lost, and their negotiating position at this point has never been stronger in the last 47 years."
Share this story