The International Monetary Fund expects the world’s oil stockpiles to shrink to a five-year low by July. IMF spokeswoman Julie Kozack said inventories should fall from a pre-war high of 8 billion barrels to about 7.5 billion barrels.
The cause is the Iran war. The Strait of Hormuz, where one fifth of the world’s oil supply passes, had been closed for nearly 100 days as of early June. The International Energy Agency counts total losses since the war began on February 28 at 12.8 million barrels a day.
Kozack told reporters the strain was spreading beyond crude. “We also are seeing that the oil price is kind of having ripple effects on oil products, and the reserves of oil products, such as jet fuels and refined products, petrochemicals,” she said, adding that those reserves are also reaching low levels.
Emergency reserves
In March, the 32 member states of the IEA agreed to make 400 million barrels available from emergency reserves. Washington pledged to release 172 million barrels of that. The US strategic petroleum reserve is now nearing its lowest level in four decades, and Energy Information Administration data put it at about 357 million barrels in the week ending May 29.
Prices
Oil has swung wildly since the war started and still sits about 35 per cent above its pre-conflict level. It eased on Thursday after President Donald Trump suggested talks to end the war with Tehran were advancing. Iranian Foreign Minister Abbas Araghchi rejected the claim that tangible progress had been made. Brent crude traded 2.56 per cent lower at $95.31 a barrel, and West Texas Intermediate 2.9 per cent lower at $93.24.
Oxford Economics warned on Tuesday that if the waterway stayed shut through July, oil would climb to a price that would be hard to tolerate.
Kozack said current prices run about 3 per cent above those in the IMF’s April reference forecast. That forecast assumed a quick end to the war, with prices averaging $82.22 this year and $76 next year, and global growth of 3.1 per cent. The fund has warned of a more “adverse scenario” in which growth drops to 2.5 per cent this year. Its next global forecast is due in July.
Forecasters adjust
Fitch cut its global growth forecast by 0.2 percentage points to 2.4 per cent for this year and raised its average Brent forecast from $70 a barrel to $87. Chief economist Brian Coulton said the shock “is hitting world growth prospects and increasing downside risks.” A boom in global spending on IT is cushioning activity in the near term, he added, “particularly in Asia.”
The Federal Reserve Bank of Boston looked at the US. Its researchers found the country is still touched by oil shocks, but that rising domestic production leaves it less exposed to recession than during the oil crises of the 1970s. They estimated that a 33 per cent price rise like this one would add 1.5 percentage points to inflation next year, against 2.2 percentage points before the mid-1970s.
