Tom Baker, managing director for Bahrain at global commodity trader Vitol, told delegates on Tuesday that the current oil market does not appear to be fully accounting for the risks created by the Iran war.
Baker said closures of the Strait of Hormuz, together with assaults on energy infrastructure including oilfields and refineries, have removed approximately 14 million barrels of Middle East supply from global markets. He described that loss of supply as the largest oil supply crisis in history.
Following the shock to supply, oil briefly climbed to $126 per barrel. By Tuesday, prices had fallen back to roughly $95 per barrel.
Addressing attendees at the S&P Global Energy Middle East Petroleum and Gas Conference in London, Baker drew a distinction between the ability to restore crude flows and the capacity of the downstream system to respond. "Crude can come back online, but from a product perspective, it might be very hard for the system to catch up for the rest of the year," he said.
The remarks underline a concern that even if upstream output is resumed, refined product availability could lag behind, complicating market dynamics through the remainder of the year. Baker highlighted the difference between crude volumes and product availability without offering a timetable for recovery beyond the comment that product markets may find it difficult to catch up within the year.
Market prices have already reflected significant volatility: an initial surge to $126 per barrel was followed by a decline to about $95 per barrel as of Tuesday. Baker's comments indicate that traders and market participants should consider both the immediate crude supply disruption and the potential longer-term constraints on refined products.
Context and implications
While Baker noted the possibility of crude being brought back online, his emphasis was on the downstream response and the challenges that refining and product distribution systems may face in rebalancing supply and demand over the coming months. The scale of the supply removal and the subsequent price movements point to sustained uncertainty in oil and product markets.