Vitol Warns of Underpriced Oil Market Risks Amid Middle East Conflict

Tom Baker, managing director for Bahrain at Vitol, warned on Tuesday that the oil market is not fully accounting for the risks posed by the Iran conflict. He highlighted the effective closure of the Strait of Hormuz and attacks on energy infrastructure, which have removed about 14 million barrels of Middle East supply, marking the largest oil supply crisis in history.

Speaking at the S&P Global Energy Middle East Petroleum and Gas Conference in London, Baker noted that while crude oil could eventually return to the market, the product side of the industry may struggle to recover for the rest of the year. He suggested a critical moment could arise when demand for physical oil barrels outstrips supply, forcing prices higher.

The Middle East conflict briefly pushed oil prices to $126 a barrel, though they have since dropped to around $95. Baker emphasized that inventories cannot be drawn down indefinitely and that China will eventually resume imports of 5 million barrels per day. When that happens, he predicted, prices will need to rise significantly, potentially leading to demand destruction, a scenario where high prices force consumers to reduce consumption.

Baker also stated that demand destruction is unlikely to occur with oil prices hovering around $90 a barrel.