Energy Market Shock Absorbers Weakening Amid Prolonged Disruptions
Energy market shock absorbers are weakening, according to senior executives from Shell and Equinor. The industry's ability to offset disruptions from the Middle East is dwindling, leaving global energy markets facing a lengthening period of tight supply and price volatility.
Recent attacks on oil tankers in the Middle East have pushed crude prices towards $110 per barrel for the first time since May. Refined products have risen even more sharply, with fuels such as diesel reaching record highs.
Shell's chief economist Adam Ritchie said that much of the impact from lost supply has been offset by weaker demand from China, inventory drawdowns, flexible shipping capacity, spare pipeline capacity, and rising output from the Americas. However, those shock absorbers are weakening, and the longer the disruption persists, the greater the risk markets will be exposed to future supply shocks.
Reopening energy chokepoints disrupted by the crisis would not necessarily bring an immediate recovery, as bottlenecks across shipping, production, and supply chains could delay a return to normal conditions well into 2027. European gas market prices will depend on weather, LNG flows through the Strait of Hormuz, and competition with Asia for cargoes, according to Equinor CEO Anders Opedal.