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Oil market could reach a'red area' in July and August, IEA chief claims

The International Energy Agency's head said that the combination of the start of summer peak fuel demand, a lack of new Middle East oil exports and dwindling stocks could push oil prices into the "red" zone in July-August.

Fatih Birol, speaking at Chatham House London in reference to oil supply problems caused by the Iran War, said: "We could be in the red zone as early as July or August."

The Middle East is experiencing the worst oil crisis ever as a result of attacks on energy infrastructure, and the effective closing of the Strait of Hormuz by Iran.

THE RED ZONE

Birol didn't elaborate on the exact definition of a "red zone". ?But he stated that the combined effect of the IEA coordinated '400 million barrels strategic reserve release and 'commercial stockdraws are not enough to resolve the crisis.

Birol stated that the "single most important solution" is to open up the Strait of Hormuz in its entirety and without condition.

Birol stated that the 32-member IEA coordinated strategic reserve release is the largest release of its kind in history. It now flows to the market between 2.5 and 3 million barrels a day.

Calculations show that if the initial 400 million barrels are released at the same pace, they will reach the market in August. This coincides with Birol's possible red zone.

Birol said that the IEA was ready to coordinate any further releases if needed.

The recovery of production in the Middle East will be slow

Birol stated that it will take time to bring the Middle?East's oil production and refinery capacity back to their pre-war level. The recovery time will vary from one country to another.

Birol stated that "my biggest fear is Iraq" as the country's finances were severely damaged by lower oil revenues. Iraq was also forced to close oil fields due to a lack in storage capacity, making it difficult to restart them.

He added that countries like Saudi Arabia and the UAE, on the other hand, have access to leading technologies and finance, which could make the recovery easier.

Brent oil futures traded at around $108 per barrel on Thursday. This is down from their highs during the war of $126 per barrel, but it's still above the $70 per barrel they were trading before the Iran War began.

(source: Reuters)