Chevron CEO Says Oil Market Underestimating Impact of Strait of Hormuz Closure

Investing.com - Chevron CEO Mike Wirth said Monday that the oil futures market has not fully accounted for the supply disruptions caused by the closure of the Strait of Hormuz.

Speaking to attendees at the S&P Global CERAWeek conference in Houston, Texas, Wirth stated that physical oil supplies are tighter than what futures contracts reflect.

“The closure of the Strait of Hormuz has had very real physical impacts, and these effects are gradually becoming apparent across the globe and throughout the system, but I believe the oil futures curve does not fully reflect these factors,” Wirth said.

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Currently, the oil contracts for delivery in August are trading at around $80 per barrel, indicating that the market expects supply disruptions to ease in the coming weeks and months.

Wirth said that market trading is based on scarce information and expectations. He added that a large amount of oil and natural gas has yet to flow into the market.

“Compared to previous events, there is indeed a difference in physical supply this time,” said the Chevron CEO.

Before the outbreak of war, about 20% of global oil supplies flowed through the Strait of Hormuz. This narrow maritime passage connects the Persian Gulf with global markets. Due to attacks on commercial shipping by Iran, tanker transportation has essentially come to a halt.

Gulf Arab oil-producing countries have reduced production because they cannot export through the strait. Iran’s missile and drone attacks have also damaged energy infrastructure in the Middle East. Wirth stated that some governments are implementing policies to retain domestic inventories and reduce exports.

Wirth said that even if the strait reopens, rebuilding inventories will take time. He added that there is still uncertainty about how quickly production can return online.

On Monday, oil prices fell 9%, after President Donald Trump told CNBC that he very much hopes to reach an agreement with Iran. After what he described as productive negotiations with Iran, Trump delayed strikes on Iranian power plants by five days.

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