Red lights indicate lack of oil | CNN Business

New York –

Six weeks ago, the world was almost swimming in crude oil. The market was well stocked and prices were low and stable. But now, some parts of the energy market are acting like the world is about to end.

That’s because the war in the Middle East has caused the largest oil supply disruption on record, setting aside an estimated 12 million to 15 million barrels of crude oil per day.

A supply disruption of such magnitude is unsustainable. No emergency oil production or promised production hike from OPEC+ can fill the gap.

Right now, red lights are flashing in the market regarding the physical supply of barrels needed to meet demand and boost the global economy.

“The longer this goes on, the scarier it gets,” said Andy Lipow, president of Lipow Oil Associates.

“If we continue the way we are now, we will run out of fuel,” he warned.

Futures and the body oil market are showing important warning signs.

Forwarding contracts at the end of this month are priced significantly higher than futures contracts. It’s a situation known as a reversal, and it suggests that the market believes that oil supply is at risk, especially for long-term contracts.

Supply pressure is the biggest factor in US oil futures which has almost doubled so far this year, and it’s only April. Brent, an international benchmark, rose above $110 a barrel.

But the price of real barrels of oil on the ground is increasing even faster – another red light. “Dated” Brent, which measures the price of physical barrels in the real world, reached $ 141.26 last week – its highest price since 2008.

“It’s like the ultimate bottle of water: You’re willing to pay anything for it,” said Vikas Dwivedi, global energy strategist at Macquarie Group. “Appreciating body oils during trauma is more of an art than a science.”

In another sign of the shortage, Saudi Arabia, the world’s largest oil exporter, is reportedly charging consumers record fees for its negligence.

Saudi Arabia is asking for a price of $ 19.50 to deliver oil to Asian buyers compared to the Arab Light crude benchmarks and up to $ 30 above Brent to European buyers, according to the Financial Times.

Americans are paying the price, literally. Lipow estimates that they are still spending – directly and indirectly – about $830 million more per day on gasoline, jet fuel and other transportation fuels than before the war.

While the oil markets are getting a lot of attention, the potential shortage of refined products like jet fuel, diesel and gasoline could be a tough problem for the economy to overcome.

Jet fuel prices have doubled in the past month as tight supply problems have turned into supply shortages. Airports typically store a few days’ worth of jet fuel, and airlines have stopped blocking and storing their fuel in recent years.

Lipow said he is “obsessed with jet fuel.” However, he noted that long before the industry would run out of jet fuel, airlines would start canceling flights.

That trend is already happening, with some airlines reducing capacity. For example, United Airlines plans to cut 5% of its schedule over the next six months – including its key summer travel season.

Some airlines have started raising ticket prices and raising alarming baggage fees. Some Italian airlines have introduced fuel restrictions for flights, according to Bloomberg.

Fuel rationing and reducing imports

If the war continues and the Strait of Hormuz remains closed for another six to eight weeks, Dwivendi said diesel shortages are possible – and even gasoline shortages if the strait remains closed during the summer driving season.

Those problems are not easily solved. Unlike crude, which can find alternative shipping routes, jet fuel, diesel and gasoline are often transported through pipelines from refineries to storage facilities.

The most vulnerable parts of the United States are the East Coast and the West Coast, both of which depend on imports to meet demand.

Tom Kloza, an independent oil analyst who works as a consultant for Gulf Oil, says: “The market on the West Coast can be destroyed after a while.”

Some countries, fearing a shortage, have started imposing restrictions in order to reduce the gap between supply and demand.

On the supply side, China, Thailand, Pakistan and South Korea have banned exports, while Russia has banned oil exports during the war with Ukraine.

To reduce demand and combat shortages, some Asian countries are supplying fuel, including Myanmar and Bangladesh.

Of course, there are costs to those restrictions, including reducing the local economy.

The United States, the world’s largest oil producer and leading refiner, has been shut down more than other countries due to supply shortages.

Yet the US is not immune to the same physical shortages of oil and fuel that are already forcing other nations to make difficult decisions.

“It’s like there’s one big hole in the interior of the ship,” said Kloza. The problem starts in Asia, then Africa and Europe.