Summary of Key Points
The flow of crude oil through the Strait of Hormuz has not returned to normal, but international oil prices have not skyrocketed yet, mainly due to temporary measures such as covert transportation, pipeline diversions, inventory releases, and reduced demand. However, the rate at which global crude oil inventories are being depleted is at a level not seen in decades. The United States' Strategic Petroleum Reserves (SPR) are nearing their limit and could reach a "critical warning level" by the end of the year. These temporary solutions are not sustainable, and as inventory replenishment and demand recovery occur, oil prices are likely to rise. Additionally, the combination of rising fuel and food prices, exacerbated by El Niño, will put pressure on inflation and politics in the United States. In the long run, this crisis has accelerated the trend of declining crude oil demand and diminishing the importance of the Strait of Hormuz.
1. Why Haven't Oil Prices Soared? It's All Due to Temporary Measures
The fact that oil prices have not skyrocketed is not because the problem has been solved, but rather because several temporary solutions are being used to fill the gap:
- Covert Transportation: The Strait of Hormuz normally handles 20 million barrels of crude oil per day; although it is currently blocked, about 2-3 million barrels are still being transported secretly by turning off ship transponders.
- Pipeline Diversions: 5 million barrels are being routed through land-based pipelines to avoid the strait.
- Drawing on Inventories: An excess of 3 million barrels that were in the market before the crisis have been used, along with the daily consumption of 4 million barrels from global inventories.
- International Reserve Releases: The IEA (International Energy Agency) has coordinated the release of 400 million barrels of reserves, including a portion from the US SPR.
- Temporary Reduction in Demand: Imports have decreased, resulting in a daily reduction of 5 million barrels of crude oil used globally.
These measures are only temporary fixes and cannot be relied on indefinitely; inventories will eventually run out, and demand will eventually return to normal.
2. Inventory Crisis! US and Global Crude Oil Reserves Are Nearly Depleted
The rate at which global crude oil inventories are being used is the fastest in decades:
- US Inventories at a 40-Year Low: Total commercial and SPR reserves have dropped to their lowest level since 1984, with the SPR now at only 308 million barrels (the lowest since 1983). Even more concerning is that although the figures look good on paper, a significant portion of the SPR is unavailable for use due to maintenance issues, leaving just over 50 million barrels short of the statutory minimum of 250 million.
- Global Inventories May Reach a Critical Level by Year's End: With a daily consumption of 4 million barrels and considering the amount of crude oil floating at sea, land-based inventories could reach a critical level by year's end, potentially leading to a sudden spike in oil prices.
The market is not yet prepared for this situation: traders lack confidence about the direction of oil prices, and most people have not made preparations for a prolonged supply disruption.
3. Will Oil Prices Soar in the Future? Temporary Measures May Not Stop the Rise
The current stability is only temporary, and several factors will drive up oil prices in the future:
- Failure of Temporary Measures: Once inventory releases are completed, pipeline diversions reach their limits, and covert transportation becomes riskier, these buffers will disappear.
- Surge in Inventory Replenishment Demand: The US SPR is borrowed and must be repaid with interest; other countries will also seek to replenish their inventories, shifting the pressure from keeping prices down to driving them up.
- Demand Recovery: Once traffic through the strait returns to normal, the previously reduced oil consumption will be made up for.
- Refined Products Market Signals Trouble: Gasoline prices are rising more slowly than crude oil prices, and diesel inventory levels are at historical lows, indicating tight supply in the refined products market.
Experts predict that even if traffic through the strait resumes, oil prices will likely remain above $70 and be supported at that level in the long term.
4. Inflation Pressure Is Rising Again? Rising Fuel and Food Prices Cause Concern for the US Government
Oil and food prices directly affect people's lives, and for the United States:
- Fuel Costs Increasing Daily Expenses: Rising oil prices will lead to higher gasoline and diesel prices, increasing consumer spending.
- El Niño Exacerbating the Situation: This year's El Niño is particularly severe, affecting wheat and palm oil production, which are in low supply, leading to higher food prices.
- Increasing Political Pressure: With mid-term elections approaching, the issue of rising prices could become a focal point for opposition parties, putting pressure on the current government.
Although core inflation (wages, housing) is slowing down in the US, the temporary impact of fuel and food prices will raise inflation expectations, making the effects more noticeable to consumers.
5. Is Crude Oil on the Decline in the Long Run? This Crisis Accelerates the Shift Away from Oil
This crisis is actually accelerating the move away from dependence on crude oil:
- Demand Side: Countries, especially in Asia, are increasingly promoting electric vehicles, which will reduce long-term crude oil demand.
- Supply Side: More pipelines are being built to bypass the Strait of Hormuz; for example, the UAE plans to double its pipeline capacity next year, and Saudi Arabia is expanding new routes, reducing the strait's importance.
Experts predict that oil prices will remain above $70 in the next 1-3 years, but long-term crude oil demand will decline, marking the end of the "golden age" for the Strait of Hormuz.
In Conclusion: The current stability of oil prices is an illusion; once inventories are depleted, the risks are significant. Prices are likely to rise in the medium term, and long-term crude oil demand will show a downward trend. Consumers should be cautious of fluctuations in fuel and food prices, while investors should pay attention to changes in inventory levels and opportunities for inventory replenishment.