Vice President for Oil-Markets, S&P Global Spencer Welch spoke to CGTN Europe on how the uncertainty of the Middle East may impact on the oil market.
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00:00 Oil, Spencer Welsh is Vice President for Oil Markets at S&P Global.
00:05 Spencer, welcome, good to see you. So oil has jumped.
00:08 Is this all down and only down to the United States and British military action
00:14 against Houthi military targets in Yemen?
00:20 Hi, good to speak to you. So yes, oil prices up about $2, up to $79 per barrel.
00:29 And really that's the only, the main identifiable reason for that.
00:33 There's nothing else in terms of better economic data or better oil demand that's supporting that.
00:38 So I think it's all down to the geopolitical situation.
00:42 For those who are not familiar with the geography or the oil industry,
00:47 just explain to us why the Strait of Hormuz is so critical as this crucial oil passageway.
00:58 Well, around 12% of global seaborne trade goes through this passageway
01:06 and around 7% of the world's oil supply.
01:09 So a significant amount of oil supplying Europe, supplying oil refineries in Europe,
01:16 which then make diesel and gasoline.
01:19 So it's a critical sea passageway.
01:24 And because of the increased risks, a number of shipping companies are avoiding the area
01:30 and around maybe around a third of the normal transits through there are avoiding that route.
01:38 Those of us who are ancient, of course, remember this from before.
01:42 I mean, how does the potential impact of this current situation on oil compare to the price shocks in the 1970s?
01:52 And come to that, even the Ukraine war and its effect on gas markets?
02:00 If we first talk about the 1970s, it's a very different situation, I'm sure.
02:06 The world is an incredibly different place since then.
02:10 From an oil perspective, the main difference is that there's a lot more oil production happening now in the United States,
02:18 whereas previously in the 1970s, the United States was very reliant on oil supply coming from the Middle East.
02:27 The second key point is that effectively the world's got more oil at the moment than it needs.
02:32 And so for the last couple of years, OPEC has been deliberately restricting supply to support price.
02:39 So there is a lot of extra available oil.
02:43 And so the chance of a shortage is very small, and hence the reaction of the market is relatively small.
02:52 If we then think about the Russia-Ukraine situation, the impact there was more on gas supply rather than oil supply.
03:02 Spencer, good to talk to you. Thank you for that.
03:04 Spencer Welsh, Vice President for Oil Markets at S&P Global.
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