Oil supply at risk as Hormuz disruptions persist

The global oil market could face more pressure as crude oil flows through the Strait of Hormuz remain disrupted, a senior research analyst at MST Marquee, Saul Kavonic, has warned.

Kavonic said the oil market is running out of measures that have helped prevent a sharp rise in crude prices in recent months.

“We are living on an oil market credit card, we can’t draw stocks forever,” Kavonic told CNBC.

He explained that large releases from strategic oil reserves and low crude imports by China had helped to reduce the impact of the supply disruptions. However, those measures are now becoming less effective.

According to Kavonic, oil flows through the Strait of Hormuz are currently about one third of their pre-war level. He estimated that only between 5 million and 7 million barrels per day of crude oil are leaving the Persian Gulf.

Much of the remaining supply is being supported by ship-to-ship transfers carried out outside the Strait of Hormuz.

Kavonic said Saudi Arabia has also increased its use of ship-to-ship transfers outside Oman and the United Arab Emirates to make up for part of the crude shipments it lost at the Red Sea port of Yanbu.

He warned that the situation could become worse if tensions in the Middle East escalate further.

“With the unresolved status of Hormuz and an unlikely diplomatic solution to the current stalemate, there is potentially room for things to get tighter and get worse before they get better,” he said.

The analyst also pointed to falling strategic oil reserves in developed countries following record releases led by the International Energy Agency.

In the United States, the Strategic Petroleum Reserve has fallen to its lowest level since the early 1980s, according to the report.

China had also reduced its crude oil imports by about 4 million to 5 million barrels per day in May and June. However, the country has started increasing its purchases again, reducing another source of relief for the global oil market.

Kavonic said these developments could put further pressure on oil supplies and prices if disruptions around the Strait of Hormuz continue.