The conflict in the Gulf is well into its third week, with U.S.-Israeli strikes on Iran and Tehran's retaliation causing severe disruptions to global energy markets, according to research from six sources. This escalation has pushed oil prices to close to $120 a barrel at points, as the effective closure of the Strait of Hormuz strains supply chains. Global energy markets remain volatile, with Brent oil futures recording notable gains amid geopolitical uncertainty, multiple reports indicate.
The Strait of Hormuz is the most critical chokepoint in the global energy trade, with roughly 20% of the world's oil supply transiting it daily before the conflict, research from six sources shows. About a fifth of the world's oil passes through the Strait of Hormuz, around 20 million barrels each day, according to US Energy Information Administration estimates. Commercial tanker traffic through the Strait of Hormuz has come to a near standstill due to the threat of Iranian sea mines and missile attacks, according to research from six sources, and energy shipments from the Middle East have been at a standstill following Iran's threats to attack vessels in this critical trade waterway.
Direct attacks on energy infrastructure have compounded the crisis, with an Iranian drone strike on QatarEnergy's Ras Laffan facilities on March 2 forcing an immediate shutdown, research from six sources confirms. The U.S.-Israel war on Iran continues, with heavy military activity reported across multiple fronts, including airstrikes in Kuwait and Bahrain, according to research from six sources.
Consumers are feeling the immediate impact, as fuel prices have increased sharply for several weeks, an official source stated. According to Sveriges Radio Nyheter, Jesper Ekström described a trend of decreased refueling by private motorists visible in sales statistics.
Europe faces particular vulnerability due to its low gas storage levels, which are currently below 30%, a five-year low, according to the Aggregated Gas Storage Inventory database. The continent needs to inject nearly 60 billion cubic meters of gas during the upcoming refill season to meet the EU target of 90% storage capacity by December, research from six sources indicates.
China's energy landscape is also under pressure, as the country uses an estimated 15 to 16 million barrels of oil daily, mainly for transportation, with Gulf countries accounting for a major source of imports, various market analysts note. Russian oil accounts for nearly a fifth of China's energy imports, making Moscow its biggest oil supplier, research from six sources shows. Additionally, China is the world's largest coal producer, accounting for more than half of global production, according to research from six sources.
Global demand dynamics are shifting, with high growth in vehicle ownership in emerging economies, such as India, Indonesia, and Brazil, increasing gasoline consumption, research from six sources indicates. However, increased demand for electric vehicles is a major restraining influence on the gasoline market, with many automakers planning to discontinue internal combustion engine vehicles, according to research from six sources.
This trend is visible in sales statistics.
In contrast, the U.S. gasoline market currently shows signs of relief, with inventories higher than this time last year, as over 10 million barrels have been added since mid-November, EIA data reveals. The average gallon of gasoline was $3.09 on Wednesday, down $0.15 from a month ago, with at least 28 states below $3 per gallon, AAA data shows.
Conflicting forecasts for 2024 U.S. gasoline prices create uncertainty, with GasBuddy.com predicting the national average retail price could drop by 13 cents next year to $3.38 a gallon in its annual outlook. The U.S. Energy Information Administration expects a 17-cent drop in next year's average pump price, according to its latest short-term forecast. However, OPIS sees an average annual price of $3.499 per gallon in 2024, the fifth most expensive year ever, with most sub-$3 values disappearing in the first 100 days, according to OPIS global head of energy analysis Tom Kloza, and Andy Lipow of Lipow Oil Associates predicts gasoline will average less than $3.50 per gallon in 2024, peaking at $3.75 in late summer. Gasoline price declines could soon end due to seasonal trends, with prices expected to tick higher as the driving season kicks in, research from six sources adds.
Technological and capacity factors offer some optimism, as advancements in refining technology, such as hydrocracking and desulfurization, provide opportunities for cleaner and more efficient gasoline production, research from six sources indicates. More than 1 million barrel per day of new refining capacity is set to come online this year in China, India, Mexico, the Middle East, and Nigeria, according to research from six sources.
Politically, the Biden administration is expected to focus on lowering driving fuel costs ahead of the presidential election, analysts anticipate.
Internationally, the IEA, IMF, and World Bank have created a joint coordination group to address the economic and energy fallout from the Middle East war, the heads of these institutions announced. The group will monitor market disruptions, align policy analysis, and deliver targeted financial support to affected countries, according to the institutions.
Key unknowns persist, including how long the Strait of Hormuz will remain effectively closed and when commercial tanker traffic might resume. The exact impact of the Middle East conflict on global oil and LNG supply chains beyond current disruptions is also uncertain, potentially affecting everything from manufacturing to transportation costs.
Additionally, whether the joint coordination group by IEA, IMF, and World Bank will successfully stabilize energy markets and support affected countries remains to be determined. The balance between emerging economies' increased gasoline consumption and the restraining influence of electric vehicle adoption adds another layer of complexity to long-term forecasts.