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Trafigura Warns of Oil Market at Inflection Point Amid Ongoing Energy Crisis

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Global commodity trading giant Trafigura on Thursday said while oil prices have remained relatively muted given the magnitude of the ongoing energy crisis, we have reached an inflection point.

Restoring production and shipping flows to pre-conflict levels after a potential peace deal between Iran and US is likely to take months, with supply deficit situation expected to continue, said Trafigura, which published its earnings for the six months period ended March 31.

Commercial inventories in the Organisation for Economic Co-operation and Development nations and gasoline stockpiles in the US were declining at a rapid pace and there weren't enough replacements to meet demand. A prolonged conflict and restrictions on shipping flows could result in severe and historic challenges, Trafigura said.

"The knock-on impacts on other markets have been relatively limited so far, but we are starting to get signs of stress emerging, particularly across Asian markets."

According to Trafigura, elevated inventories at the beginning of the year, floating cargoes, coordinated strategic petroleum reserve releases, and demand destruction across Asia and Africa were among the factors that limited the spike in oil prices.

"The conflict also started during the "shoulder season" between winter and summer and so fell between peak diesel demand and peak gasoline/jet fuel demand. That in turn allowed refiners to focus production on diesel and jet fuel, essentially borrowing time by drawing down gasoline inventories instead," it said in its earnings presentation.

However, while these factors have offered some temporary relief, they are not a solution, the trading giant said.

Trafigura estimated daily oil supply losses due to the Iran war amounted to about 14 million barrels per day versus the pre conflict levels, with cumulative losses of about 1.1 billion barrels of oil.

Trafigura, which supported the oil release from the US Strategic Petroleum Reserves, reported total traded volumes of oil and petroleum products including natural gas and liquefied natural gas, of about 8.7 million barrels per day for the six months period ended March 31, up 21% from the corresponding year-ago period.

The rise was due to an increase in exports from key regions boosted by strong global demand, Trafigura said, adding that its energy segment too benefitted due to robust demand for its supply chain and logistics services.

"We have continued to invest in our shipping fleet, including the largest fleet of oil tankers in the industry. This scale gives us the flexibility to respond swiftly and effectively to market disruptions and to serve third-party customers as well as our own trading operations," it added.

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