Chevron CEO Mike Wirth cautioned that the oil market has not fully priced in the physical supply disruption from the Strait of Hormuz closure, citing scant information and perception-driven trading.
CEO's CERAWeek Statement
At the CERAWeek conference in Houston on Monday, Mike Wirth, CEO of Chevron, stated that the futures market fails to reflect the real-world scale of the supply crisis caused by the Hormuz strait closure. He emphasized that actual physical oil constraints are more severe than indicated by futures curves.
Market Reaction to Geopolitical Developments
Oil prices dropped 9% after President Donald Trump announced intentions to negotiate with Iran, delaying strikes on Iranian power plants. Trading data showed U.S. crude for May delivery at approximately $89 per barrel and Brent near $101, while August U.S. contracts traded around $80, implying market expectations of a swift resolution.
Physical Supply Constraints vs. Futures
Wirth highlighted that the market operates on "scant information" and subjective perception. Key factors tightening physical supply include:
- Oil and gas volumes blocked from market access due to the strait's closure.
- Reduced output from Gulf Arab producers unable to export through the strait.
- Damage to Middle Eastern energy infrastructure from Iranian attacks.
- Government policies to retain domestic stocks and curb exports.
Recovery Challenges and Timeline
Rebuilding inventories will be slow, even if the strait reopens. About 20% of global oil supplies previously flowed through Hormuz. Wirth noted this supply shock differs from past events, with uncertainties about production restart speed. "It's going to take some time to come out of this," he concluded.