Fuel Prices To Remain Elevated In The U.S. Even If Hormuz Strait Is Reopened Soon With Inventories Almost Depleted

Global oil and gas inventories are almost depleted as the Strait of Hormuz has been closed for over three months. As a result, even if the key waterway is quickly reopened, U.S. consumers will still face high fuel prices.

Strategists who spoke to The Washington Post noted that prices could climb even higher by the July Fourth holiday. “These shock absorbers have been surprisingly effective,” said Jim Burkhard, global head of crude oil research at S&P Global Energy. He was making reference to the use of inventories by authorities around the world.

However, he warned that reserves continue to dwindle as the key waterway remains closed by both the U.S. and Iran.

Exxon Senior Vice President Neil Chapman said last week that “we’re approaching unheard-of inventory levels” and once that happens “you’ll see prices shoot up.” Brent crude oil, the international benchmark, could soar to $150 or $160 in such a scenario, he added. “You can see the trajectory of these inventories in the data, and it is concerning.”

Jeff Currie, Carlyle’s chief strategy officer of energy pathways and co-chairman of Abaxx Markets, told CNBC in late May that Asia is close to the “minimum operating levels” as part of the reserves can’t be used immediately.

“I would say, Asia, you’re there. Europe, give it about another month, and look for July being a problem in the U.S.,” he added.

“All of the inventories that are drawing out of the United States out of the U.S. SPR [Strategic Petroleum Reserve] are being exported into Europe, so the Europeans think they have no problem because they’re getting all of this oil being imported from the United States, but that can’t continue on,” he added.

The comments echo those of IEA chief Fatih Birol, who also said in late May that oil markets could enter a “red zone” in the summer as reserves continue to decrease.

Speaking during a Chatham House session about the impact of the key waterway’s closure, Birol said its full reopening is the main solution to the crisis.

Should that not happen, he said, the continued depletion of global stocks could lead oil markets to a “red zone in July or August,” when demand increases during summer travel season.