Falling oil prices mask supply problems

Oil prices have fallen on renewed hopes for US-Iran talks, but real tensions remain due to delays in global supply chains, the CEO of one of the world’s largest independent financial advisory organizations has warned.

warning from devere group Nigel Green comes as Brent crude traded below $100 a barrel in early Asian activity, down about 1%, while US crude fell more sharply, even as tensions escalate in the Gulf and new sanctions tied to Iranian shipping begin to take effect.

“Markets are reacting to headlines of potential negotiations, but the physical oil market is lagging,” he says.

“What we are seeing now is a move driven by emotions, not a true reflection of tightness in supply.”

He adds: “Shipping lead times are critical. Depending on the route, oil cargoes from the Gulf typically take two to six weeks to reach major destinations.

“Deliveries to Europe can take about two to three weeks, while shipments to Asia often take longer.

“The tankers currently at sea were loaded prior to the latest increase, so today’s price movements have not yet captured the disruption that is likely to occur.”

The Strait of Hormuz remains at the center of danger. About 20% of global oil consumption flows through this narrow passage, making it one of the most important energy chokepoints in the world. Even limited interventions can have major consequences.

High insurance costs, long routing times and hesitation of shipping operators can all reduce effective supply. Even if the barrels start moving, they will still move with more friction.

DeVere’s CEO adds: “Delays of several days per shipment add up quickly throughout the system. Fewer cargoes arrive on time, inventory begins to tighten, and the market adjusts only after those bottlenecks appear.”

The lag between geopolitical events and real economic impact is a defining characteristic of energy markets. Refiners, distributors and retailers rely on inventory and forward purchasing, which temporarily protects end users from immediate shocks.

“Households haven’t felt the full impact yet,” says Nigel Green. “Fuel and heating costs adjust with a delay. The decline in crude oil prices today does not guarantee relief at the pump if supply tightens in the coming weeks.”

Businesses face similar dynamics. Many companies already hedge energy exposures or secure supplies, which delays the transmission of higher costs but does not eliminate them.

“Energy-intensive sectors, logistics firms and manufacturers are operating with a buffer that will not last indefinitely,” says Nigel Green.

“As contracts expire, any continued reduction in supply will begin to impact operating costs and margins.”

For investors, the current environment requires a distinction between short-term market moves and underlying fundamentals. Price action is being influenced by changing expectations around diplomacy, while the physical supply situation is evolving more slowly.

“Investors should be cautious about short-term declines in oil prices,” he warned.

“Structural risks associated with Gulf supply routes remain significant, and the market has not yet fully assessed the potential for disruption.”

He says: “Energy markets often show a gap between sentiment and logistics in the early stages of a shock. This gap narrows over time, and may even occur suddenly.”

Additional pressures are emerging from operational constraints associated with heightened geopolitical tensions. Even without a full blockade, sanctions and uncertainty around shipping linked to Iran are creating complications in global trade flows.

“Shipping decisions are being re-evaluated in real time,” says Nigel Green. “If fewer vessels are willing to operate in high-risk areas, or if compliance requirements activity is slow, supply becomes practically harder to come by.”

He concluded: “The current modest decline in oil prices is driven by optimism around negotiations, but market mechanics point to a delayed impact.

“Shipping time delays, rising transportation costs and ongoing geopolitical tensions mean the real impacts are still working their way through the system.

“Homes, businesses and investors are likely to feel those impacts over the next few weeks.”

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