{"id":407649,"date":"2026-05-02T01:42:30","date_gmt":"2026-05-02T01:42:30","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/407649\/"},"modified":"2026-05-02T01:42:30","modified_gmt":"2026-05-02T01:42:30","slug":"the-weirdest-aspect-of-the-iran-war-that-has-befuddled-oil-experts","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/407649\/","title":{"rendered":"The weirdest aspect of the Iran war that has befuddled oil experts"},"content":{"rendered":"

\n For two months, the economic narrative about the Iran war boiled down to this: Oil and gas prices are really high<\/a>, exacerbating an affordability problem<\/a> that could send America\u2019s economy into the toilet.\n <\/p>\n

\n No doubt prices are high, increasing the risk of a recession<\/a>. But there\u2019s a key problem with that story: Prices aren\u2019t as high as they should be, considering the historic destruction of the world\u2019s oil supply.\n <\/p>\n

In 2022: When Russia attacked Ukraine, it threatened to take 3 million barrels offline (but never did). Oil soared above $120 a barrel and gas surged to $5 a gallon.<\/p>\n

Today: When Iran shut down the Strait of Hormuz<\/a>, it took 14 million barrels offline immediately \u2013 the biggest supply disruption in history. But oil is trading around $110. Gas is at $4.39.<\/p>\n

\n Oil was supposed to be at $150 by now<\/a>, according to analysts\u2019 expectations at the outset of the war. Some more aggressive forecasts predicted oil could rise even higher.\n <\/p>\n

\n \u201cI would have expected prices to be above $200. It\u2019s crazy,\u201d said Matt Smith, lead oil analyst at Kpler. \u201cEveryone is scratching their heads about this.\u201d\n <\/p>\n

\n What\u2019s going on here?\n <\/p>\n

\n Ignore your Econ 101 class for now: Supply and demand can only explain so much.\n <\/p>\n

\n The math doesn\u2019t math. Something else is happening.\n <\/p>\n

\"The<\/p>\n

Supply and demand<\/p>\n

\n Let\u2019s go through the possible explanations.\n <\/p>\n

1) The world is pumping more oil.<\/p>\n

\n Crude output in the United States, Latin America and other regions outside the Persian Gulf have grown \u2013 by historic levels, in the case of the United States. But they can only increase production so much, and the extra amount they\u2019re pumping is not nearly enough to make up for the 14 million barrel per day shortage.\n <\/p>\n

\n The two countries most able to ramp up production are Saudi Arabia and the UAE, and they can\u2019t dramatically increase exports now because of the strait closure. And global refineries that turn the oil into useful fuels like gasoline are operating at or near maximum capacity<\/a> (if they haven\u2019t been destroyed in the war).\n <\/p>\n

\n So this is an easy one to dismiss: This is not an increased production story.\n <\/p>\n

2) There\u2019s just a lot of oil out there.<\/p>\n

\n A remarkable amount of crude \u2013 580 million barrels worth, according to JPMorgan \u2013 had been sitting on oil tankers and in onshore warehouses before the war. That storage has created a significant supply buffer.\n <\/p>\n

\n \u201cRemember: Prior to the war, the oil market was in general oversupply,\u201d said Joe Brusuelas, chief economist at RSM US. \u201cSometimes it\u2019s better to be lucky than good.\u201d\n <\/p>\n

\"A<\/p>\n

\n The historic release of oil from strategic reserves and the Trump administration\u2019s de-sanctioning<\/a> of Russian and Iranian oil added a few hundred million extra barrels to the supply chain, giving the market some additional, albeit temporary, relief.\n <\/p>\n

\n Even still, all of that combined is plugging the supply gap by only about 8 million barrels a day, according to Natasha Kaneva, head of global commodities strategy at JPMorgan.\n <\/p>\n

3) Demand for oil is falling.<\/p>\n

\n Demand has also fallen \u2013 by at least 4.3 million barrels per day, according to JPMorgan. By contrast, demand destruction during the global financial crisis in 2009 was just 2.5 million barrels per day, even after oil rose above $140 a barrel.\n <\/p>\n

\n Some consumers are changing their behavior and buying less fuel because of high costs. But prices just aren\u2019t high enough to account for all that demand destruction.\n <\/p>\n

\n One explanation: Oil supply has fallen off so rapidly that it\u2019s showing up on the demand side of the leger. Some parts of the world \u2013 the Middle East and Asia in particular \u2013 are literally running out of oil and fuel<\/a>.\n <\/p>\n

\n Europe is warning about imminent shortages of jet fuel. Shortages of feedstocks for plastics have forced Asian countries to cut back on production or shut down factories altogether. Consumption of LPG, a key cooking fuel in India, has fallen 13%, according to JPMorgan.\n <\/p>\n

\n They can\u2019t demand it if they literally can\u2019t get it. When demand falls, prices sink with it.\n <\/p>\n

\"Employees<\/p>\n

\n With just 8 million barrels of supply and 4 million barrels of demand destruction, we\u2019re still not back to replacing the 14 million barrels per day we\u2019ve lost because of the strait lockdown.\n <\/p>\n

\n So oil should be much higher. Why isn\u2019t it?\n <\/p>\n

\n Speculation.\n <\/p>\n

\n The bulk of oil futures trading is made up of hedgers who buy contracts for the future delivery of crude. But about 11% of open interest crude contracts are bought and sold by speculative traders who were neither interested in taking possession of physical oil or providing short-term liquidity to the market, according to an academic paper published in the International Journal of Political Economy<\/a> in 2023.\n <\/p>\n

\n Those trades have outsized influence in the market, and today they are betting President Donald Trump will get out of Iran quickly, keeping a lid on oil prices.\n <\/p>\n

\n \u201cI think the White House has been very successful in convincing a corner of the market that the war will be over soon,\u201d said Helima Croft, global head of commodity strategy at RBC Capital Market and a former CIA analyst.\n <\/p>\n

\n So far, the United States has proven remarkably insulated from the supply shortages happening around the world. At $4.30, gas prices are high but not as bad as we\u2019ve seen, and even low-income drivers have proven more or less willing to keep up their normal habits, according to Bank of America.\n <\/p>\n

\"The<\/p>\n

\n But the inventories that have worked like shock absorbers are dwindling, and fast. US crude oil inventories unexpectedly plunged by 6.2 million barrels last week, according to the Energy Information Administration. Stockpiles of gasoline and distillates such as diesel fell sharply, too. The excess supply buffers that have supported the market only have a few months left before they break, said Hussain.\n <\/p>\n

\n Although gas prices rely far less on Middle Eastern oil than plastics and other distillates like jet fuel, crude oil remains the biggest input, and that\u2019s starting to rise steadily again \u2013 up 20% in less than two weeks.\n <\/p>\n

\n Refinery constraints will hurt, too, as we get into the summer. And shortages in other parts of the world will inevitably hit the United States, albeit with a delay.\n <\/p>\n

\n \u201cOne thing for certain is there is a global supply crunch coming, and it\u2019s\u202fnot\u202fbeing fully priced in,\u201d said Smith.\n <\/p>\n

\n CNN\u2019s Matt Egan contributed to this report.\n <\/p>\n","protected":false},"excerpt":{"rendered":"For two months, the economic narrative about the Iran war boiled down to this: Oil and gas prices…\n","protected":false},"author":2,"featured_media":407650,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-407649","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/407649","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=407649"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/407649\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/407650"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=407649"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=407649"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=407649"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}