The Oil Market’s Billion-Barrel Problem

Summary

Martijn Rats discusses current oil market volatility, highlighting multiple supply disruptions that lean the market constructive. Diesel prices are nearing demand destruction levels with perhaps another 5–10% upside. Despite over 1.5 billion barrels of cumulative supply losses, observable draws account for only a fraction, suggesting large hidden inventory buffers that could run out by late summer, risking a bigger energy price shock. High diesel prices pose particular risks to European growth.

• Oil volatility driven by renewed military conflict and multiple chokepoint disruptions.
• Strait of Hormuz flows down 80–90%, with additional threats from Bab el-Mandeb and Houthi attacks on Saudi infrastructure.
• CPC terminal intermittently shut by Ukrainian drone strikes, removing ~1.5–2 million b/d of crude exports.
• Ukrainian drone attacks on Russian refineries have slashed diesel exports, pushing ICE gas oil prices near $1,240/ton.
• Diesel demand destruction historically around $1,400/ton, implying another 5–10% upside.
• 1.5 billion barrels of cumulative supply loss vs. only ~0.5 billion barrels observable draw points to large unobservable inventories.
• Those hidden buffers could be exhausted by end of summer, creating risk of a larger oil price shock.
• High diesel prices present a particular risk to European economic growth.