MAR 10 – It has been the most volatile day of oil trading in world history. The oil price spiralled to $115 (£86) a barrel at one point early on Monday, but word soon emerged of an emergency meeting of the G7 finance ministers.
Reports suggested there could be a 300 million-barrel release of emergency stockpiles co-ordinated by the International Energy Agency.
The speculation alone was enough to temper the rise in prices a bit, but they remained much higher than pre-conflict levels.
Then, however, word emerged of what sounded like a pivot away from a long-run war by US President Donald Trump, and the oil price went into freefall, dipping below Friday’s close. When Monday’s trading day started in Asia the oil price was hovering around $90.
The spiral up can be of little surprise of course when millions of barrels of crude oil are shut in to the Gulf, and when most Gulf countries are now – at best – reporting a slowing of their production, and at worst declaring force majeure shutdowns – a clause freeing them from liability for failure to supply due to events outside their control.
Three hundred million barrels is a massive number. It would have been more than double the record previous intervention made in April 2022 after Russia’s invasion of Ukraine. These reserves have only been tapped five times. This would have represented a quarter of stockpiles.
However, this also has the potential to be the biggest oil shock in history. Three hundred million barrels is effectively less than three days of global oil consumption (104 million barrels a day), about a fortnight of normal Straits of Hormuz traffic.
The G7 finance ministers may not all agree, and they decided against tapping the reserves immediately. Other support is required.
Will all ministers want naval escorts through the Strait of Hormuz? Does a new system of insurance solve the problems when drones and missiles are whizzing in the skies above the tankers, and occasionally targeting them?
Meanwhile, the US has been pushing the idea that Russia could form part of a solution, through the use of waivers against sanctions for Putin’s war against Ukraine.
As powerful as the G7 is, China, India, and South Korea remain the key customers for physical supply of Gulf oil and gas. As such, gas tankers from the US that had been bound for Europe are now doing Atlantic U-turns and heading for the Panama Canal to deliver to Asia instead.
And what about jet fuels and the raw materials which make fertiliser also shut in to the Gulf?
After the G7 meeting, the chancellor told the House of Commons that the best way to help consumers would be a de-escalation of military tensions. The markets have read that into President Trump’s comments. Even if the war stopped today, there is still havoc in supply chains, and damage done to energy infrastructure, that will take weeks to unpick.
Nonetheless, it does seem that economic considerations are restraining President Trump, as gasoline prices for his core voters spike with the crude oil price.
For now the war has not stopped, the markets are calmer, but the situation remains volatile.
By BBC
