Interview, Conference Presentation
How high could the oil price go? | The Economist
- Traders initially anticipated a quick peace deal, permanent reopening of the Strait, and a rapid return of oil prices to normal, but these assumptions are collapsing due to the absence of a peace agreement.
- Prices are projected to need to rise to a range of $167 to $460 to destroy 13% of global demand, a level required to balance supply and demand as current prices remain insufficient according to physical traders.
- Global supply cannot be rescued by additional production elsewhere because potential volume increases in the Middle East are trapped, while US output and relaxed Russian sanctions represent a significantly smaller scale.
- The primary market buffer has been oil already at sea, which was accelerated by Gulf countries increasing exports and US naval movements, though this stockpile is being depleted at a record pace of 8 to 10 million barrels per day.
- Inventory levels for jet fuel and diesel are expected to remain far below historical averages, with crude stocks approaching minimum thresholds necessary to sustain trade.
- Longer shipping routes linking the US to China are anticipated following the loss of the Gulf as a supply source, compounding logistical challenges.
- Prices are expected to increase sharply to reduce demand, causing commercial stocks to fall rapidly to absorb the deficit alongside demand destruction in Asia.
- Current price fluctuations are driven by market sentiment regarding war end hopes and political developments rather than a calculated equilibrium of supply and demand.