Shell, Equinor Warn Energy Market is Struggling to Offset Disruptions

Global energy markets face a lengthening period of tight supply and price volatility as the industry's ability to offset disruptions from the Middle East is dwindling, senior executives from Shell and Equinor said on Wednesday.

Attacks on oil tankers in the Middle East helped push crude prices towards $110 a barrel this week for the first time since May. Refined products have risen even more sharply, with fuels such as diesel reaching record highs.

Still, the market's ability to adapt and absorb supply disruptions since the start of the U.S.-Isreali war with Iran in late February has been impressive, Adam Ritchie, chief economist at Shell Trading, told an industry conference in Oslo.

According to Shell's calculations, the world has lost about 36 million metric tons of liquefied natural gas, equivalent to the combined imports of Britain and France last year, as well as 1.6 billion barrels of crude oil and condensates, he said.

Much of the impact had been offset by weaker demand from China, inventory drawdowns, flexible shipping capacity, spare pipeline capacity and rising output from the Americas.

"But those shock absorbers are weakening," Ritchie said, adding that the longer the disruption persists, the greater the risk markets will be exposed to future supply shocks.

Reopening energy chokepoints disrupted by the crisis would not necessarily bring an immediate recovery, as bottlenecks across shipping, production and supply chains could delay a return to normal conditions well into 2027, assuming no further damage to energy infrastructure, he said.

"Thereafter, we'll need to see significant restocking, and that'll be expected to draw on supply well into next year, potentially beyond," he added.

In Europe, where gas storage levels are far below seasonal averages ahead of winter, prices will depend on the weather, LNG flows through the Strait of Hormuz and competition with Asia for cargoes, Equinor CEO Anders Opedal said.

"The shock absorbers are not as sufficient as they were in the beginning of the conflict and I think consumers will see that at least over the next months," Opedal said on the sidelines of the conference.

(Reuters)