From Bloomberg, April 25:
The Strait of Hormuz oil shock has yet to crash demand as the rich world borrows from its stocks and pays up to secure supply. Traders are now sounding the alarm that a harsh adjustment is coming.
The longer the vital oil channel doesn’t reopen, traders say, the more consumption is going to have to recalibrate lower to align with supply that’s dropped at least 10%. And for that to happen, people will have buy less, either through prices they can’t afford, or government intervention to force consumption down.
A billion barrels of supply loss is already all-but guaranteed — more than double the emergency inventories that governments released not long after the conflict began at the end of February. Buffers are being used up fast, helping to keep a lid on oil prices for now. But with the closure now in its ninth week, demand destruction that started in less obvious sectors like petrochemicals in Asia, is quietly spreading to everyday markets the world over.
“Demand destruction is happening in places that are not visible pricing centers,” Saad Rahim, chief economist of trader Trafigura Group, told the FT Commodities Global Summit in Lausanne this week. “That adjustment is already happening, but if this continues, it has to get larger and larger. We’re at a critical inflection point.”...
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...The most dependent industries and markets — including petrochemicals plants in Asia and the Middle East, and shipments of liquefied petroleum gas, a vital cooking fuel in India — saw an immediate hit when the US and Israel first attacked Iran on Feb. 28.
Now, with a stalemate between US President Donald Trump and his Iranian adversaries dragging on, the impact is increasingly shifting west — and to products that are central to consumers’ everyday lives.
Airlines in Europe and the US are cutting thousands of flights. Analysts are warning of weakness in consumption of gasoline after prices hit $4 a gallon in the US, and diesel — used to power everything from trucks to construction equipment.
Global oil demand is on track to slump the most in five years this month, according to the International Energy Agency, which co-ordinated the emergency measures by major economies to counteract the supply shock.
Trading giant Gunvor Group estimates the loss could double next month to 5 million barrels a day, or 5% of world supplies, and along with other major traders sees a growing risk of economic recession. Other analysts and traders say that the impact has already reached around the 4 million a day mark.
That toll is beginning to take shape. Germany has slashed economic growth forecasts in half, while the International Monetary Fund has trimmed global estimates, citing the war. In the most “severe” of three scenarios modeled by the European Central Bank, Brent prices peak at $145 a barrel and cut the region’s growth in half. Brent crude closed at about $105 a barrel on Friday.....
.....MUCH MORE
