Nearly three decades ago, U.S. forces had just launched the “Desert Storm” operation to liberate Kuwait from Iraq, and oil tankers navigating the region were fearful of retaliatory attacks from Saddam Hussein’s forces. At the same time, the global economy was slowing down and U.S. crude inventories were starting to pile up.
The situation in the Middle East today feels like a deja vu.
As in the Gulf War, oil tankers are at risk, with two attacked in the Gulf of Oman on Thursday. But slowing economic growth — combined with rising U.S. shale production — is swelling stockpiles. According to the U.S. Energy Information Administration, American crude inventories jumped last month by 15.7 million barrels — the largest monthly increase for any May since precisely 1991.
The contradictory forces explain why the oil market took this week’s attacks on tankers, which follow several similar incidents in the same area last month, with relative calm. In the past, the mere sniff of a threat to supplies from the Middle East would have sent oil prices up as much as 5%. Prices ended Thursday just 2.2 percent higher. They traded slightly lower on Friday as the International Energy Agency issued bearish forecasts for supply and demand balances.
“For now the war on trade is having a greater impact on oil prices than the war on tankers and market participants refuse to take the tanker attacks seriously, at least until a fully laden crude oil VLCC is hit,” said Olivier Jakob, managing director of consultant Petromatrix GmbH.
For now, the war that really worries oil investors is the deepening trade conflict between the U.S. and China — by far the world’s largest oil consumers. Between the two of them, they gulp roughly a third of global petroleum output.
Brent and West Texas Intermediate crude certainly rallied in the hours after the first reports of the tanker attacks, but were merely clawing back some of the losses earlier in the week. Even at its peak above $62 a barrel on Thursday, Brent was still trading below its price on Monday.
As the day went on, even spectacular aerial footage of one the tankers ablaze, leaking its cargo of petrochemical feedstock naphtha into the sea, crude kept sliding.