Oil Market Faces Severe Supply Deficit Amid Global Disruptions
The global oil market is facing a severe supply deficit due to the blockade of the Strait of Hormuz and sabotage of Saudi Arabia's East-West pipeline. This has removed approximately 2.5 million barrels of oil per day from the market, representing about 4% of global supply.
The crisis is intensified by the infrastructure attack in Saudi Arabia; reserves at the Yanbu port on the Red Sea coast are estimated to last only one week. Macroeconomist Artem Loginov noted that this represents the most significant supply chain disruption on record.
Global commercial oil stocks have dropped by over 500 million barrels since February, and the U.S. administration has drawn down strategic reserves to curb domestic prices. This has left the country with minimal buffers. China has shifted from using internal reserves to aggressive external procurement, increasing competition for remaining available volumes.
The International Energy Agency (IEA) expects stable shipments from the Persian Gulf to resume no earlier than 2027, suggesting a prolonged period of high volatility. Analysts from DBS Bank and IG link fuel costs to geopolitical relations with Iran, suggesting $120 per barrel may be a preliminary milestone if diplomacy fails.