Global oil shortage: Traders are scrambling to buy up supplies
13 April 02:11
A fierce battle for available barrels has erupted in the oil market amid a fragile ceasefire in the Middle East. Traders and oil refiners around the world are scrambling for shipments available for immediate delivery.
Bloomberg reports that, according to traders, panic-driven decisions in key global physical oil markets demonstrate the scale of the shortage, which will become increasingly acute as supplies from the Middle East dwindle. According to them, the sharp rise in prices signals that some European refineries will likely have to cut production—a move that could help balance the crude oil market but will exacerbate the shortage of diesel and jet fuel, reports "Komersant Ukrainian".
“There simply isn’t enough oil. The physical Brent crude market is in chaos, and prices have already risen too sharply. At this rate, even European refineries will have to cut back on production, possibly as early as next month,” said Neil Crosby, head of research at Sparta Commodities AS.
The frenzy in the physical oil market contrasts with the situation in the futures market, where prices for oil for June delivery fell by 13% last week and closed at around $95 per barrel amid optimism over the ceasefire.
“The last shipments that passed through the Strait of Hormuz before the conflict began are now arriving at their destinations. This is where paper markets collide with reality, and the 40-day gap in global energy flows becomes apparent,” said Sultan al-Jaber, CEO of Abu Dhabi National Oil Co.
This gap is evident in the premium refineries are willing to pay to secure oil available in the near term. Traders at some Asian refineries, who wished to remain anonymous, said they are no longer focused on price but are simply seeking to secure barrels wherever possible to ensure energy security.
Asian countries, which are most dependent on oil passing through the Strait of Hormuz, are sourcing oil from around the world. For instance, Japanese refiners have led the race to buy oil from the U.S., where exports have reached record levels. Active buying by Chinese refiners has led to record-high oil shipments from Vancouver this month. And Indian refiners are ramping up purchases from Venezuela.
According to traders and analysts, extreme premiums for oil ready for immediate delivery are putting enormous pressure on the market. Small refineries are facing sharply increased financing needs due to higher prices, as well as a hedging problem in a market where physical oil costs much more than the most liquid derivatives tied to it.
As a result, some oil refining companies are beginning to exit the market, which will lead to a reduction in their production volumes and an even greater contraction of the petroleum products markets.
Since March, Iran has been blocking the Strait of Hormuz, through which the main flows of oil and gas pass. Tehran has even imposed a toll on ships passing through the strait amid a truce with the U.S.
