The news hit the markets: US President Donald Trump has canceled the serious attacks on Iran announced for Thursday evening – and justified this with the status of negotiations. Prices on the stock market promptly rose – and oil prices fell significantly with the prospect of an agreement. The North Sea Brent variety fell below the $90 per barrel mark, almost 4 percent less than the evening before.
However, the oil market had previously reacted surprisingly calmly to the initially threatening escalation in the Middle East. Since the end of May, Brent crude oil from the North Sea has been costing less than $100 per barrel (159 liters). Mutual attacks by the USA and Iran as well as reports of a closure of the Strait of Hormuz, which is important for oil trade, did not cause major price jumps on the oil market.
At the start of the war at the end of February, the de facto closure of the Strait of Hormuz had driven up the price of Brent crude oil from around $75 per barrel to around $120 per barrel in March. Compared to the initial phase of the Iran war, important changes are now evident in the global oil market. Commodity experts recognize a number of factors that are slowing the rise in oil prices.
Pipeline instead of tankers
Since the Strait of Hormuz has effectively been closed to oil tankers, important oil states in the Persian Gulf such as Saudi Arabia are increasingly using alternative transport routes. More oil is delivered from the production areas via pipelines. In this way, more oil flows to ports on the Red Sea or the Gulf of Oman.
“Saudi Arabia is using the East-West pipeline to the export port of Yanbu on the Red Sea,” reports raw materials expert Carsten Fritsch from Commerzbank. Before the closure of the Strait of Hormuz, only a third of this pipeline was used. The United Arab Emirates also has a pipeline to the port of Fujairah on the Gulf of Oman. Fritsch assumes that around four million barrels per day can currently be diverted this way. For comparison: Before the Iran War, around 20 million barrels of crude oil were transported through the Strait of Hormuz every day.
Experts now also assume that, despite the closure of the strait, more tankers are passing through the Strait of Hormuz than the analysis of tracking data suggests. Analyst Ferdinand Bost from Bankhaus Metzler points to estimates that up to 2.9 million barrels per day could find their way through the strait.
China is buying less oil
While oil prices on the world market rose sharply in March, China, as one of the most important oil importers, began to rely more heavily on national oil reserves. The world’s second largest economy has systematically built up reserves over the years. Dekabank experts assume that China can currently meet domestic demand from its own inventory. The country can therefore forego expensive purchases on the world market for the time being.
USA increases supply
The loss of deliveries from the production areas in the Persian Gulf resulted in bottlenecks on the oil market, especially in Asia. The result: Other oil producers have significantly increased their oil exports in recent months. The USA in particular has increased delivery volumes. Most recently, the U.S. exported about five million barrels per day of crude oil per day. This is an increase of almost 50 percent year-on-year.
The comparatively expensive oil from the USA, which is largely obtained using fracking methods, is becoming more attractive on the global market. “The current price level makes the USA economically competitive as a global oil exporter,” says a comment from Dekabank.
Consumers are relying more on electric cars
The recent surge in oil prices has caused many consumers to rethink their approach. Experts expect that the consequences of the Iran war will fuel the boom in electric cars. The International Energy Agency (IEA) believes that rising global sales of electric cars have received an additional boost from the ongoing blockage of the Strait of Hormuz. “Looking forward, reduced battery prices and possible policy responses to the current global energy crisis are likely to provide further impetus to electric vehicle markets,” said IEA Director Fatih Birol.
Release of oil reserves
Already at the beginning of the Iran war, the International Energy Agency, as an interest group of industrialized countries, allowed member countries to release a record amount of strategic oil reserves in order to limit the consequences of the conflict in the Middle East. Among other things, the USA has made large-scale use of its oil reserves. Raw materials expert Fritsch from Commerzbank assumes that US crude oil inventories have fallen by 86 million barrels since the end of March. Some of these reserves were exported to other countries.
While the release of oil reserves is intended to protect the economies of industrialized countries from major damage, the consequences of the Iran war are already having negative consequences for economic development, including in Germany. Significantly less economic growth is expected in many countries this year. The result of the slowed upswing: less crude oil tends to be consumed. A perspective that is also likely to slow down the price of oil in the coming months.
