THE WORLD IS THREATENED WITH AN OIL SHOCK GREATER THAN IN 1973 - Filenews 27/3
By Christofer Helman
March was a dangerous month for oil refineries. On Monday night, a fire broke out at the Valero Energy refinery, with a capacity of 435.000 barrels per day, in Port Arthur, Texas. The refinery, 90 miles east of Houston, had increased purchases of heavy crude oil from Venezuela. Despite the explosion, there were no serious injuries, and the damage was limited to a diesel processing plant.
Meanwhile, Russia's huge oil export facility in Primorsk on the Baltic Sea was not so... lucky and continued to burn two days after the Ukrainian attack on her on Sunday. Other oil and gas facilities still burning are Ras Tanura in Saudi Arabia, hit by Iranian drones on March 2, and Tehran's largest refinery, hit by the Israelis on March 7. On March 19, the Saudi refinery in Yanbu, on the Red Sea, and the Israeli refinery in Haifa were hit. Both suffered minor damage.
Last week, drone attacks were carried out against Ras Lafan in Qatar and the facilities operated by ExxonMobil and Shell, from where about 20% of Qatar's gas exports leave, were shut down. QatarEnergy said repairing the damage could take 5 years and cost $26 billion. dollars.
Worst of all: Iran's blockade of the Strait of Hormuz keeps more than 18 million people trapped in the Gulf. barrels of oil and gas equivalents, fertilizers and other chemicals per day. Few ships have crossed Hormuz since the blockade compared to the 100 ships per day that passed before, with Iran saying on Tuesday that ships from "non-hostile" countries would be allowed to pass.
The biggest energy supply crisis in history
How long can the world endure such energy chaos? Not for long, warn Jeff Currie and James Gutman of private investment giant Carlyle Group, in their new analysis: it could be the biggest energy supply crisis the world has ever known. "The system simply cannot withstand such a disruption," they wrote this week.
In the meantime, shortages of basic products have appeared. Jet fuel for immediate delivery to Singapore has reached $230 per barrel (an increase of more than 100% in a month). Vietnam, Bangladesh and Australia are warning of cuts in flight schedules. China has frozen fuel exports. Russia has banned fertilizer exports, very bad news for sugar growers in Brazil. Glassware, ceramics, and petrochemical manufacturers in India have shut down due to a shortage of LNG. In search of alternatives, Taiwan, Korea, Japan, the Philippines, and Thailand have announced plans to accumulate carbon reserves.
Even the heads of the big oil companies have started sounding the alarm. Shell CEO Wael Sawan, speaking at an energy conference in Houston on Tuesday, warned of "chain reactions" in energy markets. "Jet fuel has already been affected. Diesel will be next. Gasoline will follow," Sawan commented.
Back to 1973?
The price of US crude at the level of $90 per barrel does not yet reflect the seriousness of the situation, as investors estimate that Trump will reach an agreement before the global economy collapses. However, even if peace is achieved, "there is no return to the status quo that was in place before the conflict," points out Neil Beveridge of Bernstein Research. The closure of Hormuz "has broken down the biggest taboo of the oil industry. What was considered unthinkable in the energy markets has just happened." The turmoil, Beveridge believes, is greater than previous Gulf wars or Russia's invasion of Ukraine. "Only the OPEC embargoes of the 1970s come close to the current situation."
In 1973, during the Arab oil embargo, OPEC kept up to 5 million barrels out of the market. barrels per day for 5 months, at a time when the US imported 6 million barrels. barrels per day. Oil prices quadrupled, reaching almost $12 a barrel. The queues for gasoline reached the... next neighbourhood. Inflation exceeded 12%. GDP shrank by 2%.
If the Strait of Hormuz remains closed, a return to those shortages and queues could become a reality again. According to a report published by Carlyle's Currie and Gutman: "We believe the world is more vulnerable to an oil shock today than it was in 1973."
How is this possible? Oil may be cheaper per unit of GDP than it was half a century ago, but it is more irreplaceable from an operational point of view. The world has been in an energy transition since the 1973 oil embargo, and in this period the most obvious solutions have already been exploited. Smaller cars, lowering the temperature of thermostats, using the train, green energy in everything. The Carlyle duo, in their report, argues that society may have "taken advantage of the easy margins" in terms of its independence from oil, but "the remaining barrels are the ones for which there is no substitute". Therefore, they will have a high price. "The hierarchy of energy needs is safety, affordability, and sustainability," in that order.
Don't expect releases from the strategic oil reserves to have a big impact. The Trump administration plans to release $172 million. barrels from stocks over a period of 4 months, or about 1.4 million. barrels per day. The amount is equivalent to only about 20% of the oil that does not pass through Hormuz. Releases from strategic oil reserves are only short-term; are shaped as exchanges, not sales. This requires buyers to deliver oil back to the reserve depots within the year. RBN Energy notes that if all exchanges take place, US strategic reserves will fall to their lowest level since 1982, to just $240 million. barrels. And then what? Oil shortage...
Forecast for Oil at Historic Highs
Societe Generale analyst Mike Haigh predicts that oil will rise 50% to $150/barrel in April as inventories decline and the reality of supply constraints becomes visible. It estimates that such an increase in prices will lead to a reduction in global demand by 2.7 million. barrels per day. Although $150 per barrel would be a nominal record, oil prices would need to rise to about $220 per barrel (i.e., $8.50 a gallon of gasoline) to reach the 2008 high on an inflation-adjusted basis.
