Shell CEO - Restoring Oil Market Balance May Take More Than A Year + Silver Market Update

After Fighting Stops

Speaking at a conference today, Shell CEO Wael Sawan stated that it could take a year or perhaps longer for the global crude oil market to find equilibrium supply/demand balance and that the market already faced a deficit of 1.2 billion barrels as production has been curtailed and inventories drawn-down.

We Don’t Have A Year

The US, with the most well energy supplied major economy globally, is showing a very high rate of draw on its commercial crude oil storage.

Even currently augmented with US crude drawn from the Strategic Petroleum Reserve at 1.2 million barrels per day, US commercial crude storage levels are being rapidly drawn-down.

Note in Figure 1 below, that at the current draw rate US commercial crude storage is projecting to enter ‘operational tank bottoms’ (blue shaded area) by early July.

Figure 1 - US Commercial Crude Storage (2022 to June 5, 2026) - edited with red mark; source: EIA, HFI Research

Shipment of Persian Gulf crude to market takes 1 to 2 months to effect and even partial restart of Persian Gulf production itself will take months.

Assuming the Iran War were to stop immediately.

At this rate, North American oil market oblivion has a few more weeks to go.

Silver Update

Some are asking as to the recent sell-off in silver. The price premium in China continues at 10% to Western markets and the London implied lease rate remains elevated - both indicating continued market shortage of silver.

However, over the last week equity markets have started selling-off and Bank of America analyst Chintan Kotecha indicates that this has initiated selling (deleveraging) by Commodity Trading Advisors (CTAs) that also maintain trading positions in commodity markets:

“… BofA’s estimated CTA stop-loss triggers for the NDX heading into the session were roughly 4.3% to 6.8% lower, suggesting the most risk-averse models likely began deleveraging on Friday.

However, the firm cautioned that the unwind may have further to run. “We believe at least half of the CTA long base likely remains intact, and that another ~90bps to 2% downside could trigger broader unwinds,” Kotecha wrote. …”

Selling/deleveraging in the paper markets by commodity traders likely accompanied with shorting by Swap Dealers/bullion banks appears to be the source of the price correction.

The physical market has not materially changed and looking at the likelihood of much higher price inflation in the months ahead, silver and gold monetary metals are looking rather attractive.

Best regards,

David Jensen