The world’s top oil traders said demand destruction from the Iran war is set to deepen, with consumption losses potentially doubling to 5 million barrels a day next month, Bloomberg News reported.

Gunvor Group said on Tuesday the reduction could reach 5 million barrels daily in May, roughly 5% of world supplies, and trigger a global recession if the Strait of Hormuz remains closed for three months. The demand destruction, currently concentrated in Asia, will spread as global prices react, according to Trafigura Group.

Vitol Group Chief Executive Officer Russell Hardy said the war has removed about 4 million barrels a day of demand. He said that figure will grow as the situation persists and echoed Gunvor’s warning about recessionary consequences.

Since the Iran war began at the end of February, crude oil and refined product supplies from the Persian Gulf have been cut by roughly 13 million barrels a day, according to the International Energy Agency. While the cost of physical cargoes and products like jet fuel and diesel has surged, futures benchmarks have been relatively subdued.

“Demand destruction is happening in places that are not visible pricing centers,” Trafigura Chief Economist Saad Rahim said at the FT Commodities Global Summit in Lausanne. “People are underestimating that loss of supply, that then has to be met with some loss of demand somewhere else.”

Petrochemical producers in China, Japan and South Korea have scaled back operations, reducing output of plastics used in products from bottles to electrical appliances. Airlines in countries from Vietnam to the Netherlands are canceling flights or preparing contingency plans. Across Southeast Asia, harvest-ready rice fields are lying idle as fuel and fertilizer costs rise.

“That adjustment is already happening, but if this continues it has to get larger and larger,” Rahim said. “We’re at a critical inflection point.”
Source: Investing.com