Key facts
- Vitol's Tom Baker says the oil market is underpricing risks from the Iran war.
- Iran's actions have taken approximately 14 million barrels of Middle East supply offline.
- This supply disruption is described as the largest oil supply crisis in history.
- Baker noted that product availability may be difficult to catch up for the rest of the year.
Tom Baker, managing director for Bahrain at commodity trading firm Vitol, stated that the oil market may be underpricing the risks associated with the Iran war. He highlighted that Iran's actions, including the effective closure of the Strait of Hormuz and attacks on energy infrastructure, have removed approximately 14 million barrels of Middle East supply, creating a historic crisis. Baker suggested that while crude supply might eventually return, product availability could be constrained for the remainder of the year. He noted that oil prices, which had spiked to $126 a barrel, have since fallen to around $95, and that demand destruction is unlikely at prices near $90, implying that higher prices might be necessary if demand for physical molecules increases and supply remains limited. In a separate but related development, oil prices have not yet spiked to record highs despite the significant supply disruption, due to hopes for a quick resolution to the Strait of Hormuz crisis, global inventory buffers, China's absence from spot purchases, and accelerating demand destruction amid high prices.