Exxon and Chevron warn oil could hit $160 as Iran war pushes stockpiles to ‘really low levels’

Two of America's most powerful oil companies delivered back-to-back warnings last week that the world is running out of the crude stockpiles that have so far prevented the Iran war from triggering an energy crisis of the most acute kind. Executives at both Exxon Mobil and Chevron told a Wall Street conference that inventories are approaching a threshold beyond which oil prices have only one direction to travel. Exxon Warns Oil Inventories Are Approaching 'Unheard Of' Lows The more alarming of the two assessments came from Exxon Mobil senior vice president Neil Chapman, who told the conference hosted by investment bank Bernstein in New York that the pace at which global crude stocks are falling has no modern precedent. "We're approaching unheard of inventory levels," Chapman said. He was direct about where that trajectory ends, suggesting that the only uncertainty is the precise timing of the breaking point, not the breaking point itself. "I mean really, really low levels," Chapman said. "You can debate whether that's going to hit, those really low levels, in two weeks or three weeks. Once you get to that point, then you'll see price shoot up." Chapman said oil executives have been raising this concern for two months, warning that crude futures prices have consistently failed to reflect the true scale of the supply disruption. That reckoning, he suggested, is now weeks away. "I don't know, whether it's two to three weeks or three to four weeks," Chapman said. "What I'm really saying is, once you get to the minimum inventory levels and all-time low inventory levels, there's only one way to go. That's the situation." Brent Crude Could Surge to $150 to $160 a Barrel When Stockpiles Collapse Chapman put a specific price on the inflection point. When inventories reach their all-time low, the price of physical Brent oil cargoes could surge to between $150 and $160 a barrel, he said. At that level, the market would eventually find a new equilibrium, but through a mechanism that carries its own significant economic cost. Also Read | Oil prices settle in mixed direction on conflicting reports of US-Iran ceasefire deal "When the price gets to a certain level, demand destruction brings it back into balance," he said. Brent crude futures for July delivery closed below $94 a barrel on Thursday as investors held on to hopes that a settlement between the US and Iran could reopen the Strait of Hormuz. Brent, the international benchmark, was down almost 1 per cent at $93.71 a barrel, while West Texas Intermediate traded just below $90. Chevron Chief Sees Sharp Price Pressure Building Through June and July Chevron chief executive Mike Wirth offered a parallel analysis at the same Bernstein conference, warning that the market's ability to hold prices steady is eroding at an accelerating pace. "The buffers and the shock absorbers are being steadily drawn down, and the ability for the market to absorb this imbalance is drastically diminished today versus where we started," Wirth said. With those buffers nearly gone, he said, the imbalance between global supply and demand will begin feeding directly into prices in the weeks ahead. Also Read | The fire in India’s frying pan "Over the next few weeks, we're likely to see those pressures flow through more directly to physical prices and there's more upwards pressure that I would expect as we get into June and certainly into July," he said. Iran War Has Caused the Largest Oil Supply Disruption in History The warnings from both companies reflect a market under a degree of strain that has no recent parallel. Iran's closure of the Strait of Hormuz, the narrow channel through which roughly a fifth of the world's crude oil flows, has removed between 12 million and 13 million barrels of oil a day from global markets over three months of conflict. The International Energy Agency has described it as the largest oil supply disruption in history, estimating that the closure has cost the market more than a billion barrels in total. The IEA warned earlier this month that inventories are being depleted at a record pace. In March, the organisation's member countries agreed to release a record 400 million barrels from their strategic reserves to limit the damage. Wirth said crude prices had remained below what many had forecast because three factors had acted as cushions: higher-than-normal crude stocks held before the war began, drawdowns from the US Strategic Petroleum Reserve, and continued flows of sanctioned oil from Iran, Russia and Venezuela. All three, he said, are now running low. Chapman put the same point more bluntly, acknowledging that while oil stockpiles had mitigated the disruption so far, the strategy "can't last forever." IMF, World Bank Warn Iran War is Straining Energy Supplies The heads of the International Energy Agency, International Monetary Fund, World Bank and World Trade Organization warned on Friday that the war in the Middle East was straining global energy supplies and