Quick Read
Global oil inventories are nearing critically low levels, making a spike to $150-160 per barrel highly plausible in the coming weeks.
Neil Chapman of ExxonMobil (XOM) flags 2-4 weeks until critical inventory lows, with Occidental Petroleum (OXY) cited as a top hedge.
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With the price of oil settling in the $90s despite the ongoing situation in the Strait of Hormuz, questions linger as to whether there’s another spike in the cards or if we’ll be gradually headed back to more normalized levels (think around $60 per barrel).
Indeed, perhaps the days of pre-Iran conflict oil prices are out of the cards over the medium term. Just because investors have shifted their focus towards AI and semiconductor names doesn’t mean that the Iran war is over and that the Strait of Hormuz will, in due time, get flowing with oil again.
Once things finally do get moving, there’s no guarantee that volumes will return to pre-war levels. In fact, it’s looking quite doubtful at this point. Even if there is a green light to set sail through Hormuz, the insurance situation represents a giant question mark. Even once it’s safe to sail through, there will certainly be some nerves, to say the least.
So, what’s the new line in the sand for oil, and could an “oil shock” that sees a return of triple-digit oil send shockwaves through the markets again, as investors brace for inflation and maybe even stagflation?
Inventories are dwindling, and a price spike might be weeks away
It’s hard to say, but $150-160 per barrel of Brent crude might not be as outlandish as it sounds, especially as something a bit further down the line goes awry. Notably, the world’s stored oil inventories might begin to run dry, and that could prove quite disastrous.
According to Neil Chapman, the senior vice president of ExxonMobil (NYSE:XOM), we could be entering a time when “we’re approaching unheard of inventory levels.” And that it’s up for “debate” how long it will take for “really, really low levels” to be hit. The next “two to three weeks” or “three to four weeks” was a debatable timeframe that Chapman threw out there.
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Regardless, that’s a significant move that might cause another shock to the system, especially if oil were to suddenly go from around $90 to north of $150 in as little as a few sessions.