MONTREAL (Oil Monster): Roughly 14 million barrels per day of crude oil and refined products moving out of the Middle East have become critical to keeping global energy markets balanced, with Vitol CEO Russell Hardy warning that the loss of those flows could create conditions for oil prices to reach $200 per barrel.
Speaking at the Energy Intelligence Forum in London, Hardy said approximately 12 million bpd of crude oil and another 2 million bpd of refined products had left the Middle East on tankers during the previous seven to 10 days.
With inventories across Western markets already heavily depleted, those shipments are playing an important role in preventing another sharp escalation in prices as the Northern Hemisphere enters winter.
Hardy said the continued movement of oil from the Middle East is helping replace barrels lost from global inventories during months of supply disruption.
Approximately 12 million bpd of crude and 2 million bpd of refined products have been moving out of the region, according to the Vitol chief.
Those flows are particularly important because commercial and emergency inventories in Western markets have already been drawn down heavily during the crisis.
Hardy said maintaining between roughly 10 million and 14 million bpd of Middle Eastern supply has become essential to keeping the market balanced.
Hardy warned that a major loss of the current Middle East export flow would dramatically tighten the market.
He said that without those barrels, a scenario involving oil prices around $200 per barrel becomes possible.
The comment should not be interpreted as Vitol forecasting that crude prices will rise to $200 under current conditions.
Instead, Hardy was illustrating how dependent the market has become on the recent recovery in Middle East exports after global inventories were depleted earlier in the conflict.
Hardy described the 2026 energy shock as evolving through several distinct phases.
The first phase was primarily a crude oil supply crisis as production and exports from the Middle East fell sharply.
As crude flows began recovering, refinery disruptions created a shortage of diesel and other petroleum products.
The latest stage has increasingly become a shipping crisis as vessel availability, security risks, insurance costs and longer transportation routes raise the cost of moving energy around the world.
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Hardy said tanker costs have risen extremely quickly, creating another layer of uncertainty for traders, refiners and producers.
He described shipping prices as having moved almost parabolically as companies compete for vessels and attempt to navigate conflict-related disruptions.
The result is that traders can no longer predict transportation costs with the precision normally expected in physical crude and product markets.
Hardy said uncertainty over freight can amount to several dollars per barrel, materially changing the economics of individual cargoes.
China played an important stabilizing role during the most severe phase of the supply disruption, according to Hardy.
The country was able to draw on existing oil inventories during May and June, allowing its refining and distribution system to continue operating despite reduced incoming supply.
Hardy compared China's stockpile capacity to a "lung" for the oil market because it allowed the country to absorb temporary supply disruptions.
Many developing economies elsewhere in Asia had less flexibility because they lacked comparable inventory buffers and remained heavily dependent on supply chains linked to the Middle East.
Vitol expects the shortage of refined petroleum products to remain a major problem through the winter.
Hardy said global refining capacity remains insufficient after months of reduced Middle East refinery runs and damage to Russian energy infrastructure.
The problem is particularly acute in diesel markets, where inventories have fallen sharply and refinery capacity cannot quickly replace the missing production.
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The Group of Seven recently agreed to coordinate the release of 100 million barrels of crude oil and diesel from emergency stocks through the International Energy Agency.
Hardy said additional diesel could provide some relief to European markets, but important details about the program remain unresolved.
Market participants are still waiting for clarity on how much of the 100-million-barrel release will consist of diesel rather than crude and which countries will provide the barrels.
The International Energy Agency is expected to clarify the structure of the release during meetings in mid-October.
Governments are balancing the immediate need to reduce fuel prices against the strategic purpose of emergency petroleum reserves.
Hardy noted that Europe has not experienced widespread physical diesel shortages at retail stations despite exceptionally high prices.
That leaves policymakers deciding how aggressively to draw down emergency inventories when fuel remains available but consumers and businesses face significant price pressure.
The issue has become more politically sensitive as governments attempt to reduce diesel costs without leaving themselves excessively exposed to another supply disruption.
The divergence between crude oil and refined-product markets remains unusually large.
Brent crude was trading around $98 per barrel during Hardy's remarks, while European benchmark diesel futures carried a premium of roughly $70 per barrel over crude.
That exceptionally wide refining margin reflects the shortage of diesel and the difficulty of replacing refinery output lost in the Middle East and Russia.
The imbalance means improving crude exports alone may not be enough to normalize energy prices.
The recent recovery in Middle Eastern exports has therefore become one of the most important factors preventing a more extreme oil-price shock.
Saudi Arabia and other Gulf producers have increased use of alternative pipelines, Red Sea terminals and ship-to-ship transfers while more vessels have resumed moving through the Strait of Hormuz.
Those measures have restored a substantial volume of crude and refined products to the global market even though transportation remains expensive and vulnerable to further disruption.
The immediate market outlook depends heavily on whether the current Middle East export flow can be sustained through winter.
A renewed reduction in Gulf crude or product shipments could quickly tighten an already depleted global inventory system.
At the same time, improvements in refinery output, lower shipping costs and implementation of the G7 emergency-stock release could reduce some of the pressure on diesel and crude markets.
For now, Vitol's assessment suggests the global energy system remains balanced only because Middle East supply has recovered enough to offset severely depleted inventories elsewhere.
Source: Reuters.
Courtesy: www.reuters.com
