Oil storage tanks across the Gulf region are filling up, with crude exports all but halted, according to energy analysts.
Hardly any tankers are risking transit through the crucial Strait of Hormuz, which is flanked by Iran on one side, for fear of coming under attack by Iranian drones or rockets.
As storage facilities fill up, there is a growing risk that production of crude will have to be curtailed.
“Saudi Arabia, long considered the Gulf’s unshakeable (oil) shock absorber, faces forced output cuts within a week,” Rystad Energy, a research and analysis company, said in a note Thursday. Besides Saudi Arabia, the Gulf region comprises Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates.
If the conflict drags on, “triple-digit oil prices become a very real possibility,” Aditya Saraswat, a senior analyst at Rystad Energy, said in the note. Brent crude, the global oil benchmark, is nearing $88 a barrel. “We could begin to see precautionary shutdowns across the region, which would have serious implications for global oil markets,” Saraswat added.
With storage buffers measured in days rather than months, the question for most Gulf oil producers is not whether they will have to curtail production but when, according to Rystad Energy.
Natasha Kaneva, J.P. Morgan’s head of global commodities strategy, also thinks production curbs could quickly multiply and calculates that, for every cut of a million barrels of oil output per day, the benchmark oil price rises by $4.
On Tuesday, Reuters cited two Iraqi oil officials as saying Iraq had already cut oil production by nearly 1.5 million barrels a day and that those cuts could widen to more than 3 million barrels within days as the country runs out of storage and cannot export crude due to the conflict.
