Africa-Press – South-Africa. The Middle East war is expected to lead to a long-term structural deficit in oil markets, which could see prices for this resource continue to increase over the next 12 to 24 months.
This could have severe implications for petrol and diesel prices in South Africa. In some regions, large global oil inventory draws could also see inventories reach critical levels.
Schroders South Africa’s head of client group, Philip Robotham, recently explained that the Middle East war has created a highly volatile situation for global energy security.
Robotham warned that the next couple of months will show very large global oil inventory draws.
“In some regions, inventories will still reach critical levels. Tankers will start moving, but oil fields and oil refineries are still shut,” he said, adding that around 2% of the world’s refinery output is currently damaged and offline.
The US and Iran appeared to have reached an agreement over a ceasefire in mid-April, but these peace talks have since dissolved.
Kuwait and Iraq, two of the world’s largest oil producers, have indicated that it will take three to four months to resume production, and that is only once the Middle East region is stable.
Robotham said this means that energy security is the priority for all major consuming nations.
“This is important, because even if Iran agrees to allow safe passage through the Strait of Hormuz, potentially normalising tanker traffic, 11 million b/d of production remains shut-in,” he said.
“Fully reactivating these fields will take weeks, maybe months, and simply won’t happen in a temporary truce.”
Therefore, Robotham said that while tanker traffic provides a lifeline to embattled buyers, inventories are still draining, and the market is still tightening.
“In summary, regardless of a revival of peace talks, we do not see the oil price collapsing below $75 per barrel over the foreseeable future,” he said.
“This is also reflected in the fact that the 2- and 3-year forward oil prices barely moved after the initial announcement of the ceasefire.”
Robotham said Schroders expects long-term prices to keep increasing over the next 12 to 24 months.
The graph below, courtesy of Robotham, shows the Brent oil price forward curve in US dollars per barrel.
What this means for South Africa
The Bureau for Economic Research’s Tracey-Lee Solomon recently issued a similar warning, explaining that even if the Middle East war ends soon, it does not mean the end of high petrol and diesel prices for South Africa.
Currently, only around a quarter of South Africa’s crude oil imports originate directly from the Persian Gulf.
The majority of South Africa’s crude oil imports come from other African nations, such as Nigeria, Angola, and Ghana.
However, this does not mean that the Middle East war will not have severe consequences for fuel supply and prices in South Africa.
This is because the country has become increasingly reliant on diesel and petrol shipped from refining hubs in the Persian Gulf.
This situation is made worse by the fact that South Africa currently only has three operational oil refineries, with the country’s oil refining capacity having plunged by around 50% since 2020.
Solomon explained that South Africa’s reliance on imports for the vast majority of its fuel makes the country highly vulnerable to changes in global prices for oil and refined fuel products.
As a net importer, South Africa essentially has no control over the Basic Fuel Price (BFP), which is a component of the price motorists pay at the pump.
The BFP is determined by international refined petroleum product prices and the rand exchange rate, both of which have come under pressure from the Middle East war.
“The current environment reflects both supply and logistical constraints: damage to refining infrastructure, shipping backlogs and delays, limited storage capacity and curtailed crude production due to bottlenecks,” Solomon said.
“In addition, refineries that rely on imported crude face feedstock constraints until supply chains normalise. This means that the pass-through from lower crude prices to pump prices will be delayed.”
Therefore, she said a near-term return to pre-war fuel price levels this year appears unlikely.
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