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Brent crude may climb to USD 120-125 a barrel if Middle East supply disruptions persist, while prolonged high prices could trigger demand destruction even at current levels, Abhishek Kumar, Senior Oil Analyst at Sparta Commodities, told ANI.
The next target would be $120, $125 if this continues, Kumar said, pointing to supply tightness following the attack on the Yanbu or East-West pipeline, which he said takes out close to 4 per cent of global supply. He said the loss of supply through the East-West pipeline, which helps transport Saudi crude while bypassing the Strait of Hormuz, could keep prices elevated. It can go much higher from here, Kumar said, while cautioning that it was difficult to predict the exact price level. Kumar said the immediate supply buffer from the affected infrastructure could last only around five to seven days, while damage could take a couple of weeks to repair. If the disruption continues for four weeks, the market could face a supply shortfall of close to 3-4 million barrels per day, he said. An alternative route through the Strait of Hormuz is available, but risks and limited availability of very large crude carriers (VLCCs) could make it difficult to move the additional crude, Kumar said. VLCC freight rates have risen to close to USD 1 million per day, he added. This is a very dire situation we are in, in terms of physical supply of crude oil at a time when the SPR and commercial inventory is already low, Kumar said. He also pointed to the tightness in refined products, particularly diesel. Kumar referred to an unconfirmed report that the Yanbu refinery had been hit, saying that any disruption to refinery operations could further affect diesel availability in Europe. Market is quite tight, not just on the crude perspective, but also on the product, especially a diesel, he said. On demand, Kumar said fuel prices have already risen sharply across major markets, with US retail diesel prices up nearly 60 per cent, while prices in the European Union and UK have risen 30-40 per cent. Diesel prices in some Asian countries have increased by more than 70 per cent, while others have seen rises of more than 30 per cent. As long as government is providing some sort of buffer or subsidy, they can manage, Kumar said. However, he warned that if elevated prices persist for longer, demand destruction could emerge even around current oil price levels. We are talking about demand destruction around 100, even around the current level, he said, adding that if prices remain elevated, the market could soon begin to see reports of demand destruction. (ANI)
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