The oil market faces a shortage of nearly one billion barrels that will only get worse every day the conflict in the Middle East drags on, Shell CEO Wael Sawan told investors Thursday.
“The hard facts are we have dug ourselves a hole of close to a billion barrels of crude shortage at the moment, either because of locked in barrels or unproduced barrels,” Sawan said during the London-heaquartered oil producer’s first-quarter earnings call.
“And of course, that hole is deepening every single day so the journey back will be a long one,” Sawan said.
To put that number in context, the entire world consumes about 100 million barrels of oil every day, according to data from OPEC.
Halliburton also estimates that oil production lost due to the war is trending toward a billion barrels, CEO Jeffrey Miller said on the oilfield service company’s April 21 earnings call.
“Recovery of oil and gas production and inventories will not be a quick or simple process,” Miller said.
Small consumption decline
Demand destruction due to lost oil supplies have been modest so far, Sawan said. Jet fuel consumption has been curtailed by around 5% in the airline industry, the Shell CEO said.
“What you are seeing, in essence, is just the hard realities of taking 12% of the world’s crude off the market and you have to be able to counter that,” Sawan told CNBC’s “Money Movers” on Thursday.
The oil market is facing the biggest supply disruption in history, according to the International Energy Agency. Iran has effectively blockaded the Strait of Hormuz, the narrow sea lane where about 20% of global oil supplies passed before the U.S. and Israel attacked on Feb. 28.
Oil prices have fallen more than 10% since Tuesday on renewed hopes that the U.S .and Iran will strike a deal to end the war and reopen the strait.
But it will probably take months for oil exports through Hormuz to return to normal after the conflict has ended, Chevron CEO Mike Wirth told CNBC Monday at the Milken Institute Global Conference.
The sea lane has to slowly be checked for mines in a laborious process, Wirth said. There also hundreds of ships stuck in the Persian Gulf that need to be redeployed around the world to normalize supply chains.
Exxon Mobil CEO Darren Woods said Friday that it will likely take as long as two months for oil flows to normalize once the Strait of Hormuz reopens.
The oil market had a grace period in March and April as tankers that departed the Persian Gulf before the war were still heading to their destinations, ConocoPhillips Chief Financial Officer Andrew O’Brien told investors April 30.
But those tankers by now have all arrived at their destinations, O’Brien said. The impact of lost oil supplies from the Middle East will increasingly become more apparent, and fuel shortages could hit some countries this summer, the executive said.
“Despite efforts that are ongoing to manage demand, we are going to start to see some import-dependent countries potentially start to face critical shortages as we get into the June-July timeframe,” the ConocoPhillips executive said.
