Finally, the Gulf oil crisis has arrived

Original Source: Wall Street News

The Strait of Hormuz is almost effectively blockaded, pushing the global energy market towards what could be the most severe energy crisis since the 1970s!

At Monday’s market open, oil prices surged directly.

WTI crude oil futures once soared by 22%, breaking through the $110 mark; Brent crude oil futures also surged by 20%, reaching $111.04 per barrel. Subsequently, the gains somewhat retreated.

Meanwhile, as crude oil exports are hindered and storage space rapidly runs critically low, more and more major Middle Eastern oil-producing countries are being forced to announce production cuts.

As previously mentioned by Wall Street News, the wave of production cuts in the Gulf region is spreading rapidly.

Kuwait has officially declared force majeure and significantly reduced production; the UAE has also begun adjusting offshore production levels to alleviate storage pressure.

Goldman Sachs, on the other hand, directly “overturned” its previous optimistic assessment, warning that: The actual drop in traffic through the Strait of Hormuz far exceeds expectations. If it cannot be restored in the coming days, the upside risks for oil prices will significantly expand.

More crucially, the intensity of this crisis has far exceeded initial judgments from all sides.

At the outset of the attacks by Israel and the US, officials in Gulf countries generally believed the situation would remain controllable and escalate in a limited manner, as in past conflicts.

But this time, a new variable never seen before in history has been added—

Qatar has become the world’s largest liquefied natural gas (LNG) exporter.

When its core facilities shut down, it is equivalent to suddenly cutting off nearly 20% of global LNG supply. Consequently, the energy shock has rapidly spread from the oil market to the natural gas market.

The result is: European and Asian natural gas prices soaring simultaneously.

Next, سے China’s chemical manufacturing to Asia’s power industry, a series of chain reactions may be faced.

The Hormuz Crisis Exceeds Everyone’s Expectations

The speed of the crisis escalation caught the market off guard, largely stemming from initial miscalculations by all parties.

According to The Wall Street Journal, in the weeks before the attacks by Israel and the US, officials from Gulf oil-producing countries received assurances from the US: even if retaliation occurred, the targets would only be US military bases.

In other words, Iran would not attack the energy facilities of Gulf countries, nor would it attempt to blockade the Strait of Hormuz.

After all, during the 12-day bombing of Iran by Israel and the US last June, the Strait of Hormuz remained open.

Therefore, when the attacks actually happened, most officials remained optimistic.

It is reported that some officials even exchanged Mr. Bean giving the middle finger memes in chat groups, comparing Iran’s possible retaliation to this clumsy comedic character.

OPEC held a meeting on the first Sunday after the attacks, with the focus being on whether to increase production, and almost no one seriously discussed the Iran situation.

Until the situation rapidly spiraled out of control.

A senior Saudi official later admitted:

“We truly did not expect Iran to strike the entire Gulf, completely disregarding its relationship with us.”

Subsequently, an audio recording, allegedly of an Iranian naval officer notifying ships via radio not to enter the Strait of Hormuz, spread rapidly within industry WhatsApp groups.

Tanker traffic immediately plummeted, and market sentiment instantly turned to panic.

Storage Tanks in Critical Condition, Production Cut Wave Spreads

The near-blockade of the Strait of Hormuz quickly triggered a chain reaction among Middle Eastern oil-producing countries.

The core reason is simple: storage space is almost full.

Iraq was the first to be forced to limit production as its storage tanks neared saturation, cutting output by more than two-thirds.

Subsequently, Kuwait Petroleum Corporation officially declared force majeure.

According to Bloomberg citing informed sources, Kuwait’s production cut scale has expanded from about 100,000 barrels per day on Saturday to nearly 300,000 barrels per day, with further adjustments to be made based on storage levels and the Strait situation.

In January this year, Kuwait’s daily production was about 2.57 million barrels, and its only export route is the Strait of Hormuz. If the Strait remains blocked, its storage space could be exhausted within weeks or even days.

Abu Dhabi National Oil Company (Adnoc) also announced on Saturday that it was “adjusting offshore production levels to address storage needs“.

As OPEC’s third-largest producer, the UAE’s daily production in January exceeded 3.5 million barrels.

Although Adnoc operates a pipeline to Fujairah port with a daily capacity of about 1.5 million barrels, allowing some exports to bypass the Strait of Hormuz, this route cannot fully replace the Strait’s transportation capacity.

JPMorgan estimates that if the Strait does not reopen by this Friday:

• Daily production declines in the region could exceed 4 million barrels
• By the end of March, the decline could approach 9 million barrels

This is equivalent to nearly one-tenth of global demand.

Saudi Arabia has begun diverting some crude oil for export via the Yanbu port on the Red Sea coast.

But Goldman Sachs tracking data shows that over the past four days, the net redirected flow through pipelines and alternative ports has increased by only about 900,000 barrels per day, far below the theoretical upper limit of 3.6 million barrels per day.

Additionally, attacks on storage facilities at Fujairah port and shortages of marine fuel have further squeezed alternative export capacity.

Qatar LNG Shutdown: The Crisis’s “New Variable”

Unlike any previous Middle East energy conflict in history:

Qatar has become the world’s largest LNG exporter.

The dependency formed over the past 20 years has been fully amplified in this crisis.

Following an Iranian drone attack on Qatar’s Ras Laffan gas complex, QatarEnergy announced on March 2 the suspension of LNG production at the facility and declared force majeure.

Ras Laffan has an annual capacity of 77 million tons, accounting for about 20% of global LNG supply.

HSBC Global Investment Research points out that the facility shutdown is not solely due to the Strait blockade.

With no way to ship goods out, on-site storage tank capacity is only about 1 million tons, less than five days of normal loading volume. In other words, QatarEnergy essentially had no choice but to shut down production.

The market reaction was very direct.

The European benchmark gas price (TTF) surged about 70% over two trading sessions; the Asian spot LNG price (JKM) rose about 50%.

Both hit nearly three-year highs.

LNG tankers even engaged in a “battle for cargo” on the high seas.

An LNG vessel named Clean Mistral, en route to Spain, suddenly made a 90-degree turn towards Asia, followed by several other vessels making similar adjustments.

What’s more troublesome is that restarting also takes time.

Reuters cites industry estimates stating:

• Restarting Ras Laffan itself requires about two weeks
• Returning to full production requires another two weeks

HSBC calculations:

• A one-month shutdown would lose about 6.8 million tons of LNG
• A three-month shutdown would lose about 20.5 million tons

Considering Trump previously stated that the war with Iran is expected to last four to five weeks, the mainstream market scenario’s assumed supply loss is already close to 8 million tons.

The problem is, the global LNG market has almost no spare capacity.

While the US is the world’s largest LNG exporter, its estimated spare capacity is only about 5%; Norway says its gas production is already near full capacity; Australia’s spare capacity is also limited.

Goldman Sachs “Tears Up Report”: Oil Price Upside Risks Rapidly Expanding

Goldman Sachs’ commodities research team, in a report released on March 6, almost publicly overturned its previous forecast.

Goldman Sachs’ chief oil strategist Daan Struyven previously set a baseline path as:

• Strait of Hormuz traffic maintaining about 15% over the next 5 days
• Recovering to 70% in the following two weeks
• Recovering to 100% in another two weeks

Based on this assumption, Goldman Sachs raised its Q2 average price forecast for Brent to $76 and WTI to $71.

But reality quickly shattered these assumptions.

Goldman Sachs’ latest estimate:

Strait of Hormuz traffic has already fallen by about 90%, meaning a reduction of about 18 million barrels per day.

The actual redirected flow through alternative pipelines is only one-quarter of the theoretical upper limit.

Meanwhile, most shipowners are now choosing to wait and see.

What truly prevents ships from passing is not freight rates, but physical security risks—as long as the physical risk exists, ships will not pass through even if freight rates are high.

Goldman Sachs stated bluntly in the report:

If no signs of a solution are seen this week, oil prices are very likely to break above $100 next week.

If Strait traffic remains low throughout March, oil prices (especially refined products) could exceed the historical peaks of 2008 and 2022.

The report also specifically emphasized:

The upside risks for oil prices are “rapidly expanding“.

Energy historian Daniel Yergin also warned:

“In terms of daily oil production, this is the largest supply disruption in global history. If it lasts for weeks, it will have profound effects on the global economy.”

The US is Relatively Insulated, but the Shock is Still Spreading

US Energy Secretary Chris Wright said on Fox News on Sunday that energy would “soon flow again” through the Strait of Hormuz, and believed the oil price rise was mainly due to market concerns about the conflict’s duration.

Trump, on Air Force One, said he was not worried about gasoline prices and expected oil prices to “fall back very quickly” after the war ends.

Compared to the 1970s, the US energy structure today indeed has more buffer capacity.

The oil and gas industry accounts for a lower share of GDP, and the US itself has become a major energy exporter.

But the problem is—

Oil prices are globally priced.

Rising retail prices for gasoline and diesel will still have a real impact on US consumers.

Airline executives have already warned that soaring jet fuel prices will squeeze quarterly profits and could push up airfare prices.

Meanwhile, some of the US government’s response measures also conflict with existing policies.

To mitigate the impact of Gulf supply disruptions, the US Treasury Department has eased some sanctions on Russian crude oil to help countries like India find alternative supplies.

This creates a clear contradiction with previous policies aimed at isolating Russia’s oil industry.

According to analyses by HSBC and Morgan Stanley, this energy shock presents distinctly different impacts in Europe and Asia.

For China’s chemical industry, it is somewhat an موقع.

Soaring European natural gas prices have increased production costs for local chemical companies. HSBC Qianhai Securities points out this will bring market share expansion and product premium space for Chinese chemical enterprises (such as in MDI, TDI, vitamins, etc.).

In Asia, however, the problem is more severe—

The market faces real energy supply shortages.

Morgan Stanley notes that about 20% of Asia’s power and gas industry relies on Middle Eastern LNG, with India, Thailand, and the Philippines particularly exposed.

To cope with fuel shortages and rising costs, some Asian countries have already begun turning back to coal power to maintain grid stability.

یہ مضمون انٹرنیٹ سے لیا گیا ہے: Finally, the Gulf oil crisis has arrived

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