Eight months of Middle East conflict have drained the world's spare oil inventories, leaving the market with almost nothing to absorb another supply shock. Top industry executives warn that losing current Middle East flows could send crude toward $200 a barrel.
Global oil inventories have been worn down to the point that the market has almost no buffer left against another Middle East supply shock, top industry executives said this week. As a result, each new scare over regional supply now sets the floor under oil prices a little higher than the last one did.
Flows recover, but the cushion is gone
Crude oil supply from the Middle East has recovered to, and in some estimates exceeded, pre-war levels. Yet shipping routes, trade patterns and tanker costs remain far from normal, and fuel exports out of the region are still severely constrained. Oil prices have held near $100 a barrel for a month. The G7's Friday announcement that it would release 100 million barrels of crude and diesel stocks failed to move Brent oil prices materially lower.
Eight months ago, the world looked headed for a supply glut, with OPEC+ gradually easing the production cuts it enacted in 2023 and non-OPEC output rising steadily. The Middle East crisis has since wiped out that surplus and drained the buffers countries once held against supply shocks.
Vitol sees a $200 scenario without Middle East flows
Chevron chief executive Mike Wirth told the Energy Intelligence Forum in London this week: "the underlying fundamentals are becoming tighter and tighter", adding that the floor rises and the system grows more sensitive with each cycle.
Vitol Group chief executive Russell Hardy told the same forum that over the prior seven to ten days, as much as 14 million barrels a day had been flowing out of the Middle East — sort of 2 million barrels of products and 12 million of crude, Hardy said. Without those flows, the market would face a $200-a-barrel scenario, Hardy said, since there are no more inventories left to drain in the West.
Reserves have fallen sharply since the war began
The world entered the crisis holding nearly 10 billion barrels of global oil stocks, Saudi Aramco chief executive Amin Nasser said at the forum. Since then, nearly 3 billion barrels of gross oil supply have been lost, roughly half of what would normally have moved through the region over the same period.
More than 1 billion barrels drawn from global stocks offset part of that loss, Nasser said. He added that less than 6 billion barrels of commercial inventories remain today, with most of that not practically available, leaving the system already straining with very little cushion left.
For seven months, market participants hoped the war would end and flows would normalize soon after. Now, with few spare barrels left, each new scare simply resets the floor higher.
Source: Oilprice.com
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