Original author: Ye Zhen
Original source: Wall Street News
With the Strait of Hormuz virtually blocked, the global energy market is being pushed toward what may be the worst energy crisis since the 1970s!
Oil prices surged immediately after the market opened on Monday.
WTI crude oil futures surged as much as 22%, breaking through the $110 mark; Brent crude oil futures also jumped 20% to $111.04 per barrel. The gains subsequently subsided.
At the same time, due to the obstruction of crude oil exports and the rapid depletion of oil storage space, more and more major oil-producing countries in the Middle East have been forced to announce production cuts.
As previously mentioned by Wall Street News , the wave of production cuts in the Gulf region is spreading rapidly .
Kuwait has officially declared force majeure and significantly reduced production; the UAE has also begun adjusting its offshore production levels to alleviate storage pressure.
Goldman Sachs, however, directly reversed its previous optimistic assessment , warning that the actual drop in traffic flow in the Strait of Hormuz far exceeded expectations . If it fails to recover in the coming days, the upside risks to oil prices will significantly increase.
More importantly, the severity of this crisis has far exceeded the initial assessments of all parties.
At the outset of the attacks by Israel and the United States, officials in the Gulf states generally believed that the situation would remain controllable and escalate to a limited extent, as had been in previous conflicts.
But this time, a new variable that has never appeared before in history has also been added—
Qatar has become the world's largest exporter of liquefied natural gas.
When its core facilities shut down, it meant that nearly 20% of the global LNG supply was suddenly cut off . The energy shock thus spread rapidly from the oil market to the natural gas market.
The result was that natural gas prices in Europe and Asia soared simultaneously.
The following events could trigger a series of chain reactions, affecting everything from China's chemical manufacturing sector to Asia's power industry .
The Hormuz crisis exceeded everyone's expectations.
The speed at which the crisis escalated caught the market off guard, largely due to initial misjudgments by all parties.
According to The Wall Street Journal, weeks before the attacks by Israel and the United States, officials from Gulf oil-producing countries were assured by the U.S. that even if retaliatory actions were carried out, the targets would only be U.S. military bases.
In other words, Iran will not attack energy facilities in Gulf countries, nor will it attempt to block the Strait of Hormuz.
After all, the Strait of Hormuz remained open during the 12-day bombing of Iran by Israel and the United States last June.
Therefore, when the attack actually occurred, most officials remained optimistic.
According to reports, some officials even forwarded Mr. Bean's middle finger meme to each other in chat groups, comparing potential Iranian retaliation to this clumsy comedic character.
OPEC met on the first Sunday after the attack, focusing on whether to increase production , with almost no one seriously discussing the situation in Iran.
Until the situation quickly spiraled out of control.
A senior Saudi official later admitted:
"We really didn't expect Iran to take action against the entire Gulf and completely abandon our relationship."
Subsequently, a recording, purportedly of an Iranian naval officer instructing ships via radio not to enter the Strait of Hormuz , quickly spread in industry WhatsApp groups.
Tanker traffic immediately plummeted, and market sentiment instantly turned to panic.
Storage tanks are running low, and production cuts are spreading.
The Strait of Hormuz was almost completely blocked, which quickly triggered a chain reaction among Middle Eastern oil-producing countries.
The core reason is simple: the oil storage space is almost full.
Iraq was the first country forced to cut production due to its oil storage tanks nearing capacity, with output reductions exceeding two-thirds.
Subsequently, Kuwait Oil Company officially declared force majeure.
According to Bloomberg, citing sources familiar with the matter, Kuwait's production cuts have been expanded from about 100,000 barrels per day on Saturday to nearly 300,000 barrels per day , and will continue to be adjusted based on oil storage levels and the situation in the Strait of Hormuz.
In January of this year, Kuwait's daily oil production was approximately 2.57 million barrels, and its only export route is the Strait of Hormuz . If the strait remains blocked, its oil storage capacity could be exhausted within weeks or even days.
Abu Dhabi National Oil Company (Adnoc) also announced on Saturday that it is " adjusting offshore production levels to meet storage needs ."
As OPEC's third-largest oil producer, the UAE produced more than 3.5 million barrels per day in January.
Although Adnoc operates a pipeline to the port of Fujairah with a daily capacity of approximately 1.5 million barrels, which can bypass the Strait of Hormuz and maintain some exports, this route cannot completely replace the strait's shipping capacity .
JPMorgan Chase estimates that if the Straits of Hormuz is not reopened by Friday:
- The region's daily production may fall by more than 4 million barrels.
- By the end of March, the decline could approach 9 million barrels.
This is equivalent to nearly one-tenth of global demand.
Saudi Arabia has begun diverting some of its crude oil exports to the port of Yanbu on the Red Sea coast.
However, Goldman Sachs tracking data shows that net redirection flows through pipelines and alternative ports increased by only about 900,000 barrels per day in the past four days, far below the theoretical upper limit of 3.6 million barrels per day.
Furthermore, the attack on storage facilities in the port of Fujairah, along with a shortage of marine fuel, has further hampered alternative export capabilities.
Qatar's LNG production halt: A "new variable" in the crisis
Unlike any previous Middle Eastern energy conflict:
Qatar has become the world's largest exporter of LNG.
This dependence, which has developed over the past 20 years, has been amplified in this crisis.
Following the Iranian drone strike on Qatar's Ras Laffan gas complex , Qatar Energy announced on March 2 that it would halt LNG production at the facility and declare force majeure.
Ras Laffan has an annual production capacity of 77 million tons , accounting for approximately 20% of the global LNG supply.
HSBC Global Investment Research points out that the facility's shutdown was not solely due to the Straits blockade.
Unable to transport goods out of the country, the on-site storage tanks had a capacity of only about 1 million tons , less than five days' worth of normal loading. In other words, Qatar Energy Company had virtually no choice but to halt production.
The market reaction was very direct.
European benchmark natural gas prices (TTF) surged by about 70% in two trading days; Asian spot LNG prices (JKM) rose by about 50% .
Both reached their highest levels in nearly three years.
LNG tankers have even staged " battles for cargo " on the high seas.
An LNG carrier named Clean Mistral suddenly turned 90 degrees toward Asia while en route to Spain, and several other ships subsequently made similar adjustments.
What's more troublesome is that restarting also takes time.
Reuters, citing industry estimates, said:
- Ras Laffan's restart itself will take about two weeks.
- It will take another two weeks to return to full production.
HSBC estimates:
- A one-month production halt will result in a loss of approximately 6.8 million tons of LNG.
- The production stoppage for three months resulted in a loss of approximately 20.5 million tons.
Given Trump's previous statement that the war against Iraq is expected to last four to five weeks , the mainstream market scenario assumes a supply loss of nearly 8 million tons .
The problem is that the global LNG market has almost no spare capacity.
Although the United States is the world's largest LNG exporter, its spare capacity is estimated to be only about 5% ; Norway says its natural gas production is already close to full capacity; and Australia's spare capacity is also limited.
Goldman Sachs "tears up" report: Upside risks to oil prices rapidly expanding.
In a report released on March 6, Goldman Sachs' commodities research team almost openly overturned its previous predictions .
Goldman Sachs' chief oil strategist, Daan Struyven, had previously set a baseline path as follows:
- Traffic flow in the Strait of Hormuz is expected to remain at approximately 15% over the next five days.
- It recovered to 70% in the following two weeks.
- 100% recovery in two weeks
Based on this assumption, Goldman Sachs raised its second-quarter average price forecast for Brent crude to $76 and for WTI crude to $71 .
But reality quickly shattered these assumptions.
Goldman Sachs' latest estimate:
Traffic flow in the Strait of Hormuz has decreased by about 90% , which is equivalent to a reduction of about 18 million barrels per day .
The actual redirected traffic of the alternative pipeline is only one-quarter of the theoretical maximum.
At the same time, most ship owners are now choosing to wait and see .
What truly prevents ships from passing is not the freight cost, but the physical safety risk – as long as the physical risk exists, no matter how high the freight cost, the ship will not pass.
Goldman Sachs stated bluntly in its report:
If no solution is seen this week, oil prices could very well break through $100 next week .
If strait traffic remains low throughout March, oil prices (especially refined oil) could exceed the historical peaks of 2008 and 2022 .
The report also specifically emphasized:
The upside risks to oil prices are " rapidly increasing ".
Energy historian Daniel Yergin also warned:
"In terms of daily oil production, this is the largest supply disruption in global history. If it continues for several weeks, it will have a profound impact on the global economy."
The United States is relatively isolated, but the impact is still spreading.
U.S. Energy Secretary Chris Wright said on Fox News on Sunday that energy will “soon be flowing through” the Strait of Hormuz again, and believes that the rise in oil prices is mainly due to market concerns about the duration of the conflict.
Trump said aboard Air Force One that he was not worried about gasoline prices and expected them to " fall back very quickly " after the war ended.
Compared to the 1970s, the United States' energy structure is indeed more resilient today.
The oil and gas industry accounts for an even smaller share of GDP, and the United States itself has become a major energy exporter.
But the problem is—
Oil prices are set globally.
The rise in retail prices of gasoline and diesel will still have a real impact on American consumers.
Airline executives have warned that soaring jet fuel prices will squeeze quarterly profits and could drive up airfares.
At the same time, some of the US government's responses have conflicted with existing policies.
To mitigate the impact of supply disruptions in the Gulf, the U.S. Treasury Department has eased some sanctions on Russian crude oil to allow countries like India to find alternative supplies.
This is in stark contrast to previous policies that attempted to isolate Russia's oil industry.
According to analyses by HSBC and Morgan Stanley, this energy shock has had drastically different effects in Europe and Asia.
This presents an opportunity for China's chemical industry to some extent.
Soaring natural gas prices in Europe have driven up production costs for local chemical companies. HSBC Qianhai Securities points out that this will bring market share expansion and product premium opportunities for Chinese chemical companies (such as those producing MDI, TDI, and vitamins).
In Asia, the problem is even more severe—
The market is facing a real energy supply shortage .
Morgan Stanley points out that the Asian power and gas industry relies on Middle Eastern LNG for about 20% , with India, Thailand and the Philippines having particularly significant exposure.
In response to fuel shortages and rising costs, some Asian countries have begun to revert to coal-fired power in order to maintain grid stability.
