“Red Zone” for Oil Market - IEA Chief's Warning. It Could Arrive in July-August
Rising demand for fuel during the summer, combined with a lack of new oil exports from the Middle East and dwindling reserves, could push the oil market into the "red zone" in July-August, the head of the International Energy Agency said.
"We could enter the red zone in July or August if we don't see some improvements," said Fatih Birol, referring to the oil supply crisis caused by the war in Iran. Attacks on energy infrastructure and Iran's closure of the Strait of Hormuz have removed more than 14 million barrels a day of oil supplies from the Middle East, marking the largest oil supply crisis in history.
Birol did not provide details on what exactly a “red zone” would look like. But he said that the oil market’s pre-war surplus, the coordinated release of 400 million barrels of strategic reserves by the IEA, and the combined withdrawals of commercial stocks are not enough to solve the crisis.
"The most important solution is the full and unconditional opening of the Strait of Hormuz," Birol said. The 32-member IEA's coordinated release of strategic reserves, the largest such release in history, is now flowing into the market at a rate of about 2.5 million to 3 million barrels per day, Birol said.
At that rate, the final supplies from the initial 400 million barrels would hit the market by early August, Reuters calculations show, coinciding with Birol’s potential red zone. He added that the IEA is ready to coordinate further releases if necessary.
"It will take a long time to restore oil production and refining capacity in the Middle East to pre-war levels, and the recovery time will vary from country to country," Birol said. "My biggest fear is Iraq," Birol said, as its finances have been severely damaged by reduced oil revenues, and as a lack of storage capacity has forced Iraq to shut down oil fields, which could be difficult to revive.
On the other hand, countries like Saudi Arabia and the United Arab Emirates have access to key finance and technology that could make recovery easier, he added.
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