Oil: War-driven supply shock supports prices – Commerzbank

Commerzbank’s commodity team, including Barbara Lambrecht and colleagues, highlights that the Iran war has triggered the largest oil supply outages ever, with the IEA estimating losses of at least 8 million barrels per day. A record 400 million barrel reserve release only partly offsets this and is seen as temporary. As long as the conflict persists, Brent and broader oil prices are expected to stay well supported.

Record outages keep Brent elevated

"The IEA estimates production losses in March at an average of 8 million barrels per day. These are the highest losses ever recorded. At just under 99 million barrels, global daily supply is at its lowest since the first quarter of 2022, when the war in Ukraine led to short-term losses in Russian oil production."

"The industrialised countries belonging to the IEA have announced the release of a record 400 million barrels of oil from emergency reserves in order to calm the oil market. Theoretically, this amount would cover the loss of oil supplies through the Strait of Hormuz for about a month. Spread over a period of two months, a supply gap of around 7 million barrels per day would remain if the strait remains completely closed."

"The focus remains on the conflict in Iran. Even if the historically largest release of oil reserves compensates for production losses in the short term, this is only a temporary solution. After all, it is offset by the largest outages on the oil market ever seen."

"The US Energy Information Administration (EIA), on the other hand, is more optimistic in the medium term: the significant rise in oil prices is likely to lead to higher US crude oil production, albeit with a delay of several months. For this year, the EIA expects production levels to remain at 13.6 million barrels per day. Next year, production is expected to rise to 13.8 million barrels per day."

"As long as there is no end in sight to the war, prices will remain well supported."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)