On the surface, the oil market looks relatively calm.
The oil futures market, which most investors watch to see where prices are heading, has actually been down for the past three days. But there are new signs of stress in the market, and the warnings from oil executives about a looming shortage are only growing louder. U.S. gasoline prices hit $4.47 on Friday, up 17 cents in just one week.
Chevron CEO Mike Wirth said at a conference this week that the oil market's "buffers" are running out, leaving oil buyers increasingly vulnerable to price spikes.
The U.S. strategic petroleum reserve is down to 285 million barrels, versus its full capacity of over 700 million. The reserve can only be drawn down by about 30 million more barrels before it hits limits imposed by Congress that make emptying it more legally complicated.
As the market's safety mechanisms disappear, escalations in the Iran war are having an outsize impact. One of Saudi Arabia's pipelines was damaged in an attack last week, causing the kingdom to cancel planned shipments to European refiners, according to multiple media reports. Saudi Aramco, the state oil giant, declined to comment about the reports.
Europe normally gets about 600,000 to 800,000 of the 14 million barrels of oil it uses per day from Saudi Arabia. Refiners secure much of their supply through long-term deals. Without guaranteed Saudi oil, refiners have to buy more on the volatile spot oil market, which is already showing signs of strain.
Spot prices for Brent crude, the global benchmark measured in Europe's North sea, were up to $137 per barrel on Friday, $33 above the Brent futures price that is normally considered the most accurate price of oil.
Until a couple of weeks ago, the spot and futures prices were trading in lockstep, often within a dollar of each other. When the prices decouple like they are today, it can be a sign that the stress of the day-to-day oil market isn't yet being reflected in trading markets. That doesn't mean that oil prices will invariably rise-the market could balance in the other direction too, assuming the Saudi pipeline is repaired sooner than expected or the Iran war comes to an end. But it does raise the risk of futures prices moving higher.
Europe isn't the only place where there are signs of anxiety in the oil market. The price of Shanghai crude on the futures market has also spiked higher, exceeding $130 per barrel earlier this week and trading around $115 on Friday, according to data from Refinitiv.
China has been a wild card in oil markets since the war began. There is less transparent data about the Chinese market, so analysts have had trouble predicting what the country might do next.
For much of the war, China has helped balance the market by reducing imports of oil. It has relied instead on its substantial stockpiles, estimated before the war at 1.2 billion barrels, or enough to fully cover about 100 days of normal imports. Chinese residents also appear to have reduced consumption considerably, which has allowed the country to reduce its reliance on imports. So far, China has used 147 million barrels of its inventories, JP Morgan strategist Natasha Kaneva estimates.
One way to explain the recent increase in Chinese oil futures is that China's demand is rising at a time when supply is scarce. It appears China is ramping up its oil imports again, writes Tim Rezvan, an analyst at KeyBanc Capital Markets, which is one reason he's increasingly bullish on oil into next year.
Rezvan thinks that prices, and the stocks of producers can keep rising even after a very strong year.
"We view this latest attack [on the Saudi pipeline] as a significant escalation that raises the ceiling on 'worst case' outlooks for global markets," he wrote.
Rezvan thinks that energy producers with high exposure to oil prices could see more gains. Among the names he cites are Matador Resources, SM Energy and Talos Energy.