Earlier this week, the International Energy Agency, after consulting with G7, said it would release another 100 million barrels of diesel, gasoline, and crude oil. The release is part of a plan announced in March to release 400 million barrels of oil in response to the Hormuz squeeze. But there is a problem with those releases—storage is emptying.
When the U.S. administration began releasing oil from the Strategic Petroleum Reserve, a flurry of reports followed, citing experts who warned the level of oil in the SPR was already low enough for concern, and any further draws would be risky. As of the start of October, the amount of oil in the strategic U.S. reserve stood at 331.2 million barrels, which was the lowest since 1983, following the latest release of over 9 million barrels. The releases are part of a 172-million-barrel release the United States committed to earlier this year.
The U.S. strategic oil reserve, however, is not the only one reaching minimum levels. Global inventories are on the decline, too. According to the IEA’s latest monthly oil report, from September, global oil inventories dropped by 95 million barrels in August, bringing the total draws since February to 507 million barrels, translating into 2.8 million barrels daily. The one piece of good news that the IEA had in that report was that OECD commercial inventories rose by 23 million barrels, offsetting a 19-million-barrel draw in strategic reserves.
However, the good news did not last long. Earlier this week, Aramco’s chief executive Amin Nasser warned that the world’s oil inventories were running dangerously low—and implied the prospect of refilling them was rather distant.
“The system is already straining,” Nasser told the Energy Intelligence Forum in London. “And, with precious little else the world can turn to, the supply resilience cushion is scarily thin.” The replenishment of drained inventories, Nasser noted, could take up to two years, and that only after the Strait of Hormuz reopens. While the world waits for that to happen, it is draining its inventories, exposing itself to much more severe supply shocks if the war drags on into 2027.
“IEA Member governments still have significant levels of publicly held emergency oil stocks – equivalent to around 1.1 billion barrels, including over 200 million barrels of diesel,” the agency’s head, Fatih Birol, said this week, following his meeting with agency members to discuss the new release of oil and fuel. “The IEA stands ready to release more of these stocks to the market if and when required.”
This was meant to reassure the market that there will be no shortage of, notably, diesel. However, it might well spark concern instead of allaying fears of shortages, because global inventories are also dangerously close to their operational minimum and that cannot be breached because once you breach it, you have no global inventory system.
The world has drawn over 1 billion barrels of crude from inventories since the start of the war between the United States and Israel, and Iran. Most of that came from commercial inventories, Aramco’s Nasser said this week. That leaves less than 6 billion barrels still in storage—and those 6 billion barrels are needed to stay where they are to keep the storage system functional. The world, it seems, has worn its oil supply cushion through.
No wonder, then, that a lot of countries, notably in Asia, are now in a race to build their oil inventories. Asia is especially vulnerable to adverse events in the Middle East because most of its oil imports come from the region. With that severely compromised, Asian economies, especially Southeast Asian ones, have been struggling to secure fuel for their economies and populations, and to keep them relatively affordable.
“The most advanced efforts are support for the development of oil stockpiling systems in each country and regional joint stockpiling on (a) voluntary basis,” nine governments from Southeast Asia said in a statement this week, as quoted by Reuters. In other words, they will be doing what the IEA is doing, to be able to better respond to future crises. But here is the thing—that oil that these countries will be stockpiling has to come from somewhere and not cost an arm and a leg. It would take a while before prices return to more palatable levels for Southeast Asian governments—or any other governments that would need to refill storage.
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