With oil markets nearing the danger zone, a US-Iran deal can't come soon enough | Heather Stewart

A US-Iran deal could arrive as oil prices near a dangerous tipping point. Spot crude prices have risen about $100 since Iran closed the Strait of Hormuz in response to US and Israel actions. Prices remain below historic highs, which can create the appearance of stability, but supply and inventory pressures are worsening. Strategic oil reserves have been released at record levels, some Gulf production has been rerouted through pipelines bypassing Hormuz, and China’s imports have fallen, possibly due to stockpile drawdowns. The International Energy Agency reports record depletion of oil stocks, and analysts warn inventories may soon reach crisis levels. If the strait stays effectively closed and OECD inventories keep falling, critical lows could occur by late June, pushing Brent to $130-$140 and reducing demand through price-driven consumption cuts.

"If the strait remains effectively closed and commercial oil inventories in the OECD continue to be run down at the same pace as they were in April, oil stocks could reach critically low levels by the end of June. He suggested that that could push Brent crude prices to $130-$140 a barrel; and"

"Yet beneath the surface, every week that goes by has drawn the energy markets closer to what economists call a non-linear adjustment, wonk-speak for chaos. Thus far, several factors have helped to ease potential supply constraints, including a record coordinated release of strategic oil reserves; rerouting of some Gulf production to pipelines, bypassing the strait of Hormuz; and a rapid fall in imports to China, which some analysts believe may reflect Beijing drawing down stockpiles."

"The cost of a barrel of crude on the spot market for immediate purchase, effectively has bounced about $100 since Iran predictably responded to the onslaught from the US and Israel by closing the strait of Hormuz. That price remains well below historic highs, and because it has not surged into the stratosphere, it can look as though markets have settled into an uneasy stasis."

"And the International Energy Agency (IEA), whose executive director, Fatih Birol, has been sounding the alarm from the start, said last week that oil stocks are being depleted at a record rate. And several analysts have issued warnings in recent weeks that the point may be fast approaching when they drop to crisis levels. That could push prices so high as to cause demand destruction—the falling back of consumption to meet constrained supply—on a scale much more economically damaging than anything we have yet seen."

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