World losing 100 million barrels a week of oil with Hormuz closed, Saudi Aramco chief says

Global oil markets are losing 100 million barrels every week that the Strait of Hormuz is closed, as a result of the US-Israeli war on Iran, the head of Saudi Arabia’s state oil producer said on Monday.

“The energy supply shock that began in the first quarter is the largest the world has ever experienced,” Saudi Aramco chief executive officer Amin Nasser told analysts on an earnings call.

Nasser said the world is coping with the shock through "demand rationing" of available supplies.

"We expect demand rationing to continue as long as supply remains disrupted through the Strait of Hormuz. If normal trade and shipping resume, we anticipate a very robust return to demand growth," Nasser said.

Energy analysts have already said the collapse of oil exports through the Strait of Hormuz is being felt unevenly, with countries in Asia that are almost totally dependent on the Gulf for their oil, rationing. In the West, particularly in the US, energy prices have risen, but there have been no measures to restrict consumption.

Oil prices soared on Monday by more than three percent after US President Donald Trump said the ceasefire with Iran was "on life support”, with traders betting on a return to conflict.

But Nasser echoed other CEOs and energy experts who have said there is a disconnect between the physical price of oil and what is being traded in the futures market.

As of 11 May, Brent crude futures for July delivery are trading at around $105 per barrel. However, the price customers are paying for oil in the real world is substantially higher.

 A tipping point 

Georges Elhedery, the CEO of HSBC Bank, said last month that the price paid for a barrel of oil reached as high as $286 in Sri Lanka. Other experts have said that buyers in Asia are paying around $150 per barrel of oil.

Nasser said the market has been buttressed by drawing down inventories stored at sea and on land, which he called “the only buffer that is available today”. He warned that global stockpiles have been “materially depleted”.

The International Energy Agency coordinated the release of 400 million barrels of oil by its member countries at the start of the war. China, the world’s second-largest consumer of oil after the US, also quietly slashed its imports of oil by 25 percent from pre-war levels. Those moves have helped keep prices in check, but Nasser warned against complacency.

“The aggregate inventory level globally is not a proper reflection of the current physical market tightness that we see,” he said.

Oil traders, analysts and US banks have all warned that the global energy market will hit a tipping point in June if the Strait of Hormuz is not reopened.

“If the Strait of Hormuz is not reopened sometime in June/July, global oil inventories will hit an operational floor and result in greater rationing, mostly outside the US,” JP Morgan warned last week.

Aramco posted a 26 percent jump in first-quarter adjusted net income, beating analyst expectations. The kingdom is exporting between 60 and 70 percent of its pre-war volume, but at substantially higher prices.

Whereas Kuwait, Bahrain and Iraq are highly dependent on the Strait of Hormuz for exports, Saudi Arabia has been able to bypass the waterway via its East-West pipeline that terminates at the Red Sea port of Yanbu.

Nasser called the pipeline a “critical lifeline” and said it was currently pumping at its five-million-barrel-per-day capacity, but looking to increase that number.

The kingdom is also using the Red Sea to export 900,000 barrels per day of refined products.