Why do oil prices continue to remain above $100?

Although there was a recovery in the amount of crude oil reaching global markets from West Asia, energy prices did not return to pre-war levels.

While the barrel price of oil is above 100 dollars, it is approximately 40 percent higher than when the war started.

Bloomberg gathered the developments that keep prices high despite the recovery in crude oil supply under five main headings.

1- THE RISK OF THE WAR RE-ESCRISING

One of the most important headlines that keeps oil prices up is the concern that the war between the USA and Iran may intensify again.

While the US sending additional aircraft carriers and soldiers to the Persian Gulf keeps the geopolitical risk in the region alive, Iran's attacks on some ships around the Strait of Hormuz also increase concerns about the security of oil shipments.

Moves by Iran and the United States to gain control over passages in the Strait of Hormuz cause continued uncertainty at one of the most critical transit points of world oil trade.

The risk is not limited to Ormuz. The Iranian-backed Houthis' declaration of a blockade against Saudi ships via Bab al-Mandab also increased the pressure on alternative energy routes via the Red Sea.

2- THE COST OF OIL TRANSPORTATION HAS EXPLODED

The disruption of normal operations in oil transportation through the Strait of Hormuz also increased transportation costs.

Ship-to-ship transfers, shuttle services and routes used outside the usual routes increased tanker costs.

The increase in daily freight charges of tankers carrying oil from the Persian Gulf to China to over 1.2 million dollars has become one of the important items that increase the final cost of crude oil.

The decision of the G7 and its partners to release up to 100 million barrels of emergency oil and diesel reserves in order to relieve the pressure on the market was not enough to create a permanent decline in prices.

3- GLOBAL OIL STOCKS ARE AT 5-YEAR BOTTOM

Another factor supporting prices is the sharp decline in global oil stocks.

While it is estimated that global stocks have decreased to approximately 4.3 billion barrels, the decrease since March has exceeded 400 million barrels.

Thus, the total stock level fell to the lowest level in the last five years.

The melting of stocks means that the buffer that can be used in case of a new supply interruption becomes smaller. Therefore, the oil market becomes more vulnerable to war or shipment disruptions.

4- GLOBAL OIL DEMAND HAS INCREASED AGAIN

Although high oil prices initially suppressed global consumption, there was a recovery in demand.

Daily global oil demand increased by 6.5 million barrels in May, compared to the wartime low, reaching approximately 104.8 million barrels.

The resurgence of demand despite prices above $100 makes it difficult for the increase in crude oil supply to pull prices down.

5- SUPPLY PROBLEM CONTINUES IN DIESEL AND REFINED PRODUCTS

The recovery in crude oil supply has not eliminated the supply problem in the entire energy market.

The problem continues, especially in refined petroleum products such as diesel.

The decrease in exports from refineries in West Asia and Russia causes refineries in other regions to operate at higher capacity.

Refineries need a constant supply of crude oil to maintain production, which keeps oil demand high and causes buyers to pay higher prices.

OIL IS AT THE CENTER OF THE RE-INFLATION RISK

The fact that oil prices remain above 100 dollars directly affects not only the energy markets but also the global inflation and interest rate outlook.

While high oil and diesel prices increase costs in many sectors, especially transportation, production and food, they increase the risk of re-accelerating inflation.

This situation stands out as one of the main risks that may cause central banks to keep interest rates at high levels for a longer time.

The fact that oil was once again preferred by investors as a hedge against inflation during the period when bond yields rose was among the factors that supported prices.

Although the oil flow from West Asia is approaching pre-war levels, the risk of re-intensification of the war, security problems in Hormuz and Bab al-Mandab, stocks falling to a five-year low, renewed demand and the shortage of diesel supply make it difficult for oil prices to drop permanently below 100 dollars.