How much oil-market buffer is left?

On September 15, the world's oil market is facing unprecedented pressure, with crude oil prices surging to new all-time highs. Brent crude, a widely used benchmark, peaked at $126 per barrel in March, but has since fallen to $105.68 by September 14, after hitting $106.73 earlier in the day. This price surge reflects a combination of supply disruptions, geopolitical tensions, and increasing demand.

The increase in oil prices has been driven by a sharp drop in production due to the conflict in the Middle East. According to the International Energy Agency (IEA), global production has fallen to 100.1 million barrels per day, with more than 10 million barrels per day of Gulf production still offline. Saudi Arabia's production alone has dropped by 2.3 million barrels per day, to 5.97 million barrels per day.

In addition to reduced production, the conflict has also led to supply disruptions. Tanker attacks have damaged production units at Qatar's Ras Laffan complex, which accounts for about 17% of the country's LNG export capacity. This means that Asian buyers will have to look elsewhere for supplies.

The situation has put further pressure on oil storage levels. Before the conflict, the world produced about 4 million barrels of oil per day more than it used. However, since the conflict began, the world has had to draw on stored oil every month. The IEA estimates a full-year supply loss of 5.7 million barrels per day, which is about 6% of the world's oil. The agency expects Gulf oil flows to remain below normal until 2027.

As a result, oil prices are likely to remain high for the foreseeable future. The difference between the price of crude oil and the retail price of fuel at the pump, known as the crack spread, has also widened. Diesel prices have risen faster than gasoline prices as supplies of refined fuel have tightened. The spread between diesel and WTI crude oil grew from about $89 in January to $161.9 on September 15. Gasoline prices have also increased, with the spread growing from about $59 to $78-84.