The IMF said that prevented the global economy from experiencing bigger price shocks as the world dealt with the largest oil supply shock in more than five decades.<\/p>\n
“That success, however, has a cost,” the IMF note read.<\/p>\n
“With buffers now depleted, the system is more exposed if disruptions persist or escalate anew, and rebuilding stocks will keep the market tight even as supply recovers.”<\/p>\n
Some experts said it could take about two months for the impact of the Strait of Hormuz closure to be felt in oil markets.<\/p>\n
The oil price has increased by more than 10 per cent following the most recent closure of the strait.<\/p>\n
How the oil shock was absorbed<\/p>\n
Before the war started in late February about 20 per cent of the world’s oil supply transited through the Strait of Hormuz.<\/p>\n
The IMF said three factors stopped the closure of one of the world’s busiest shipping lanes from causing even more harm to the global economy.<\/p>\n
One factor was the slowing of demand, especially in Asia, where consumption changed as a result of higher prices and a move to alternative energies such as coal and renewables.<\/p>\n
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<\/p>\n
Oil production outside the Gulf rose after the US-Iran war, especially across the US, Venezuela, Guyana and Russia. (IMF blog)<\/p>\n
The IMF also said oil production outside the Gulf increased to almost 2 million barrels a day above 2025 levels, largely from the US, Venezuela, Guyana and Russia.<\/p>\n
But it said the rest of the shock was absorbed by reserve supplies.<\/p>\n
“The estimated market deficit of about 4.0 million barrels a day in March\u2013May was met almost entirely by drawing down global stocks,” the IMF said.<\/p>\n
Oil reserves have been ‘spent’<\/p>\n
The IMF the closure of the Strait of Hormuz had not led to a “full-blown price shock” because the reserves absorbed what the market could not.<\/p>\n
It said that by the end of May oil reserves were estimated to be about 1.2 billion barrels, which was half the level prior to the conflict.<\/p>\n
“That cushion, however, has been spent,” the IMF said.<\/p>\n
“If the disruption were to persist at current rates, that lower bound would be reached by early 2027.<\/p>\n
“Well before that point, prices would likely move sharply higher, as the market would effectively be operating without a safety net.”<\/p>\n
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The IMF said the estimated deficit in the market of about four million barrels a day between March and May\u00a0was supplied almost entirely through oil reserves.\u00a0 (IMF blog)<\/p>\n
Some analysts, including the Commonwealth Bank’s Vivek Dhar, said it would take about 10 weeks for the reduced oil output in the Gulf to be felt in markets.<\/p>\n
He has warned oil prices may as high as $US150\/bbl at the end of that period if the Strait of Hormuz remains closed, as this is the cost necessary to sufficiently cut demand across Asia to match reduced supply.<\/p>\n
“Markets now have more of a reason to price in this scenario and suggests that, if the status quo persists, we could see Brent oil futures lift towards $US100\/bbl in the next 10 days,” Mr Dhar said.<\/p>\n
But Rabobank analysts have not changed their forecast of a $US80\/bbl average between July and September and $US78\/bbl for the end of the year.<\/p>\n
“The oil market’s initially contained reaction to the renewed fighting in the Persian Gulf is a sign that the supply shock can be contained \u2014 at least for a while,” Rabobank said in its update.<\/p>\n
It added that the market had been aided by oil reserves, smaller Chinese oil imports and different supply routes.<\/p>\n
“This has created a form of geopolitical complacency, we do not see it as sustainable over the longer term,” it said.<\/p>\n
Capital Economics’ Kieran Tompkins, a senior commodities economist, said investors had expected prices to increase somewhat.<\/p>\n
The firm analysed investor perceptions of the oil price over the next three months.<\/p>\n
“The main takeaway is that investors are swiftly pricing in the potential for further disruptions to global oil supplies,” Mr Tompkins said.<\/p>\n
“Investors have become appreciably more uncertain about their expectations for the most likely outcome for oil prices.<\/p>\n
“Given that the level of global oil inventories is now much closer to a ‘tipping point’ compared to a few months ago, there is less room to absorb a sustained loss of oil flows without prices rising sharply.”<\/p>\n
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