Oil Market Shows Unexpected Resilience Amid Looming Supply Crunch

The oil market has shown surprising resilience despite warnings of a looming supply crunch. The US-Iran ceasefire expired this week, and negotiations have stalled, but the price of oil has edged higher. This is remarkable given that expectations earlier in the crisis were that the loss of Mideast crude supplies would drain inventories to operational stress levels by June.

The world has coped with the decline in supplies since the US-Israel attacks on Iran began on February 28 through a combination of stock releases, alternative routes, and demand erosion. The staggering losses of Mideast crude and products supplies now surpass 2 billion barrels.

On the supply side, markets have proven to be quite resilient. An average of 20.4 million barrels per day of crude, refined products, and other liquids transited the Strait of Hormuz prior to the war. Of this, 3.9 million b/d was rerouted, approximately 5 million b/d continues to pass through the strait (although volumes fluctuate greatly), and 2 million has come from higher production outside the Mideast Gulf.