With navigation restrictions in the Strait of Hormuz entering a fourth month due to the U.S.-Iran war, the U.S. oil industry warned the Donald Trump administration that if the current trend continues, oil prices could surge within weeks.
On the 4th (local time), Politico, a U.S. political news outlet, cited four oil industry executives as saying, "The oil industry warned the Trump administration that the blockade of the Strait of Hormuz has created a major supply gap in the global oil market, and as inventories continue to decline, there is a high likelihood that global energy prices will soar in the coming weeks."
They said industry leaders have conveyed these concerns to senior White House officials and Cabinet members during ongoing consultations between the Trump administration and the U.S. energy industry in recent weeks.
One official, who requested anonymity, told the government that "crude inventories are already dangerously low," and said, "We conveyed concerns to the highest levels of government about what could hit in mid- to late June." The official added, "We're now at the point where the bottoms of the storage tanks are showing."
Earlier, Neil Chapman, senior vice president of ExxonMobil, said at a conference in New York on the 28th of last month that "we are approaching an unprecedentedly low level of crude inventories," and projected that "if inventories hit historic lows, Brent spot prices could soar to $150 to $160 a barrel."
An oil industry executive told Politico, "The Trump administration is already aware of Chapman's warning," and warned, "Even if the Strait of Hormuz reopens, don't assume that gasoline prices for the July 4 Independence Day holiday won't go higher than now. In fact, they will go higher."
As the war drags on, U.S. crude inventories are falling rapidly. According to weekly crude inventory statistics from the U.S. Energy Information Administration (EIA), as of the 29th of last month, total U.S. crude and petroleum product inventories (including the Strategic Petroleum Reserve) stood at 1.57 billion barrels, down 10.6 million barrels from the previous week. That is the lowest level in about 22 years since May 2004.
With crude inventories declining, oil prices are also much higher than before the war. According to the American Automobile Association (AAA), as of the 4th, the U.S. average gasoline price was $4.26 per gallon, up $1.28 from before the war broke out. Although it has eased somewhat from the roughly $4.50 per gallon recorded a few weeks ago, some say prices could surge again if shortages worsen.
Jim Burkhard, vice president of S&P Global Energy and head of global crude research, said, "What's remarkable is that prices haven't risen much so far, thanks to a global inventory buffer," adding, "But this cannot last forever."
The Trump administration is pursuing various responses to stabilize prices. It has boosted U.S. crude production to record levels and secured new supply sources, including Venezuela, while extending a Jones Act waiver to allow foreign vessels to transport oil between U.S. ports. It also emphasizes that once the Strait of Hormuz is fully reopened, prices will fall to February levels or lower.
Taylor Rogers, White House Spokesperson, said in a statement, "President Trump and his energy advisers have anticipated the possibility of short-term market disruption and have communicated that transparently to the American people," adding, "We have also implemented an active response plan to mitigate its impact."