Oil & Energy
Gulf Supply Shock Redraws Global Crude Trade as Canada, Asia Adjust, Wood Mackenzie Says
Effective closure of the Strait of Hormuz resulted in forced shut-ins of about 11 million barrels per day of production at the peak of the conflict, forcing major importers to redraw supply chains, Wood Mackenzie said in note on a Thursday.The shut-ins and force majeure reshaped global crude and fuel markets, the research firm said, citing satellite-based production monitor estimated. Iraq's output dropped from 4.5 mmbbl/d to 820,000 b/d, while Kuwait lost more than 70% of production.The two countries were the worst hit by the closure of the crucial waterways for the lack of any alternate route to export oil and gas, according to multiple reports.WoodMac's satellite data showed producers first drained storage before output declined. Iran's Kharg Island had about nine days of usable storage on May 1, while Kuwait and Iraq continued loading cargoes before inventories climbed, Wood Mackenzie said.Western Canada quickly filled part of the supply gap as the Trans Mountain Expansion pipeline moved a record 832,000 b/d in April at 93.5% utilization. Westridge terminal loaded 500,000 b/d, with 87% heading to Asia-Pacific.South Korea committed to import 33 million barrels of Canadian crude in May under the Canada-Korea Free Trade Agreement, sharply higher than about 4.5 mmbbls during all of 2025, the note said.Wood Mackenzie expects Canadian oil sands production to reach 3.61 mmbbl/d in 2026 and 3.82 mmbbl/d in 2027. Planned pipeline expansions could add 90,000 b/d in 2027, 150,000 b/d in 2028 and 250,000 b/d in 2029, according to the note.California entered the disruption with refinery closures already removing about 167,000 b/d of gasoline production. State-wide output totaled 682,000 b/d against demand of 857,000 b/d, creating a 175,000-barrel deficit, Wood Mackenzie said.Regional demand from Las Vegas and Reno in Nevada, and Phoenix and Tucson in Arizona lifted California's effective gasoline shortfall to about 329,000 b/d. Higher imports kept supplies flowing as freight from Asia climbed to about $14 per barrel.Three pipeline projects, backed by HF Sinclair (DINO), ONEOK (OKE), Phillips 66 (PSX), and Kinder Morgan (KMI) are competing to reduce California's fuel transport costs, but Wood Mackenzie said each must compete with shipping costs that could ease toward $5 per barrel after the Strait of Hormuz reopens.California consumes 857,000 b/d of gasoline, while Japan uses 720,000 b/d despite having 123 million people and 78.7 million registered vehicles. Both markets now compete for supplies from South Korea, China, India and Washington State, the note said.Europe entered the crisis with about 1.8 mmbbl/d of refinery maintenance already offline. Refineries increased utilization and maximized jet fuel output, but inventories still lagged seasonal norms, Wood Mackenzie said.Wood Mackenzie said weaker Indian gas oil exports, down 42%, alongside Russian refinery outages near 1.8 million b/d, could complicate Europe's winter diesel and jet fuel stock rebuild if disruptions persist beyond August.Asia-Pacific crude imports dropped 23% from pre-conflict levels in April. China's Middle East arrivals fell 77%, Japan's imports declined 76%, Korean refinery utilization dropped from 94% to 72%, while China's and India's gas oil exports fell 73% and 42%, respectively.Japan holds about 200 days of strategic petroleum reserve coverage, while India's commercial and government reserves cover roughly 74 days.Australia also pursued regional energy supply agreements with Singapore, Malaysia and Indonesia, Wood Mackenzie said.The US extended its Jones Act waiver through Aug. 16, allowing nearly 4 mmbbls of refined products to reach California. Meanwhile, Venezuela resumed shipping 550,000 b/d to Houston and Pascagoula, while Cushing inventories fell to 21-week lows.Wood Mackenzie said production cuts, inventory movements and freight costs revealed supply tightness before prices reflected the full impact. The report said physical market data consistently moved ahead of headline announcements across regions.
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