US EIA admits Middle East supply disruptions far worse than previous estimates

The U.S. 'Energy Information Administration' revised its forecasts on Tuesday to reflect a larger and longer hit to global?oil supply from the Iran War than they had previously projected. This highlights the uncertainty which has been roiling broader energy markets ever since the conflict started three months ago. Energy analysts found it hard to predict how long and deep the disruptions in oil markets would be from the Middle East war, particularly since U.S. president Donald Trump made contradictory claims, claiming that the conflict could end in a few weeks but threatening to fight to send Tehran back to "stone age."

The blockade of Iran's Strait of Hormuz is continuing to rob millions of barrels of oil from the global supply each day that the conflict continues. The EIA said on Tuesday that it now expects the Strait of Hormuz to be effectively closed until the end of May. It had previously assumed the closure would continue through April.

The agency also estimates that 10.5 million barrels were shut down in the Middle East during April. This will increase to 10.8 million barrels per day this month, as Middle Eastern storage tanks reach their maximum capacity. EIA said that the increase was partly due to the fact that it expects Iran to be forced into reducing its oil production because of the U.S. ban on the country's exports through the Strait of Hormuz.

EIA forecasted earlier that production losses would peak in April at 9,1 million bpd.

EIA stated that the changes in assumptions indicate much larger draws from global stockpiles than previous expectations. This will keep oil prices high. The EIA forecasts global oil inventories to fall by 2.6 million barrels per day this year. This is up from the earlier estimate of a 300,000 barrels per day draw.

The EIA stated that Brent crude oil will average $106 a barrel between May and June before falling to $89 a barrel during the fourth quarter as Middle East production begins to recover.

The EIA stated that if the Strait of Hormuz remained closed through June, a month longer than current assumptions, oil prices in the near term would be $20 higher per barrel than current forecasts.

DEMAND DESTRUCTION

The EIA has also revised its forecasts for global oil demand. The EIA has revised its global oil demand forecasts downward to 200,000 bpd, down from the 600,000 bpd growth predicted last month.

The EIA stated in its short-term energy forecast report that "we expect higher prices to bring about a reduction in demand for oil, which will help the oil market move towards balance."

The agency stated that the price increase would be greater the longer the oil production is shut down and the disruptions in oil flow persist.

Independent analysts also stated that'multi-year high fuel prices in the United States may weigh on demand during peak summer travel seasons, and also pose a major challenge to Trump months before the midterm elections in Nov.

According to the U.S. Energy Information Administration's short-term monthly energy outlook report, it now expects U.S. gasoline retail prices to average $3.88 per gallon in 2018. This is about 18 cents higher than its previous forecast released in April. Reporting by Shariq KHan and Scott DiSavino from New York, editing by Chizu Nomiyama & Andrea Ricci

(source: Reuters)