The oil market is facing a shortfall of almost a billion barrels which will get worse every day as the conflict in the Middle East continues, A shell CEO Wael Sawan told investors on Thursday.
“The hard facts are that we’ve dug a hole of almost a billion barrels of crude shortages right now, either because of a lock in barrels or unproduced barrels,” Sawan said during the oil producer’s first-quarter conference call in London.
“Also, that hole is getting deeper every day so the return trip will be longer,” said Sawan.
To put that number in context, the entire world consumes about 100 million barrels of oil every day, according to data from OPEC.
Halliburton and estimates that oil production lost due to the war is in the billion barrels, CEO Jeffrey Miller said in the company’s April 21 trading call.
“The recovery of oil and gas production and supplies will not be a quick or easy process,” Miller said.
Less consumption
The destruction of supplies due to the loss of oil has been minimal so far, Sawan said. Jet fuel consumption has been reduced by about 5% in the aviation industry, a Shell executive said.
“What you’re seeing, in fact, is the hard reality of taking 12% of the world’s pollution out of the market and you have to be able to counter that,” Sawan told CNBC’s “Money Movers” on Thursday.
The oil market is facing the largest supply disruption in history, according to the International Energy Agency. Iran successfully blockaded the Strait of Hormuz, a narrow sea route through which about 20% of the world’s oil passed before the US and Israel invaded in Feb. 28.
Oil prices have fallen more than 10% since Tuesday on renewed hopes that the US and Iran will reach an agreement to end the war and reopen the border.
But it will likely take months for oil exports out of Hormuz to return to normal after the conflict ends, Chevron CEO Mike Wirth told CNBC Monday at the Milken Institute Global Conference.
The sea route should be carefully monitored for mines, Wirth said. There are also hundreds of ships stuck in the Persian Gulf that need to be redeployed around the world to normalize supply chains.
Exxon Mobil CEO Darren Woods said on Friday that it will take about two months for the oil flow to return to normal once the Strait of Hormuz is reopened.
The oil market had a period of grace in March and April as tankers that left the Persian Gulf before the war were still on their way to their destinations, ConocoPhillips Chief Financial Officer Andrew O’Brien told investors on April 30.
But those tanks have now all arrived at their destination, O’Brien said. The impact of the loss of oil from the Middle East will be more visible, and fuel shortages may hit some countries this summer, the official said.
“Despite ongoing efforts to control demand, we will begin to see some countries that are dependent on other countries potentially start to experience significant shortages as we move into the June-July period,” said a ConocoPhillips executive.
