Oil prices fell Thursday as a weaker demand outlook from the International Energy Agency outweighed fresh supply risks from the Middle East, including an oil spill off Oman's coast. A separate Reuters analysis warns that global emergency stockpiles, drawn down over the five-month U.S.-Iran war, could run dry within months if the conflict drags on.
Prices fall despite Middle East supply risk
U.S. West Texas Intermediate futures dropped 2% to $81.61 a barrel on Thursday. Brent crude, the international benchmark, fell 1.8% to $87.40. The declines came even as the region's security situation stayed precarious, with attacks on vessels in the Gulf of Oman and the Red Sea this week.
The International Energy Agency said global oil demand is set to fall further than previously expected this year, even as the closure of the Strait of Hormuz deepens its impact on supply. The agency said supply remained 6.3 million barrels a day lower year-on-year in July, citing renewed hostilities and maritime disruptions.
Adding to the pressure, Oman's coastline has started to be affected by a massive oil spill from a tanker that ran aground on June 30 while carrying an estimated 800,000 barrels of sanctioned Russian oil. According to CNBC, Christopher Tahir, a senior market strategist at Exness, said "the lack of clarity over the possibility of a full reopening of the waterway" could leave prices exposed to the upside.
How long could emergency stockpiles last
Beyond the day's price move, a wider question is emerging over whether global reserves can absorb a prolonged war. The head of Saudi Aramco believes the world has lost 2.6 billion barrels of oil since the war began, the largest cumulative supply disruption on record apart from the 1979 Iranian revolution.
Most analysts believe the daily supply gap now stands at 5 million barrels per day, even though Aramco says the world is losing 11 million barrels of Gulf supply daily. The International Energy Agency released 400 million barrels from emergency reserves in March and says the global economy still holds substantial stocks, but it cannot order the release of commercial stocks held by refiners.
That leaves only 0.9 billion barrels in government-held stocks, enough to cover the supply gap for 180 days. One-third of those government stocks sit in the United States, where Strategic Petroleum Reserve inventories have fallen to their lowest level since January 1983.
Diesel supplies feel the squeeze
Diesel is under particular strain: global stocks of diesel and jet fuel sit at the bottom of their five-year range, according to Morgan Stanley, after the war damaged Middle Eastern and Russian refineries. China, however, could withstand the disruption far longer than most, since Energy Aspects estimates the country held nearly 1.7 billion barrels of crude oil in July — enough to cover its pre-war Strait of Hormuz imports of about 5.5 million barrels per day for almost a year.
The standoff over the Strait itself remains unresolved: Iran's Basij chief said this week the waterway is under the Islamic Republic's control, a day after U.S. President Trump said Washington fully controlled it instead. Neither claim changes the physical supply picture traders are now watching most closely — how much cushion is left in the world's emergency reserves.
Sources: CNBC, Investing.com, Investing.com
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