Oil pipelines around the world are drying up, depleting at an unprecedented rate, as the ongoing war with Iran severely disrupts crude flows from the Persian Gulf, rapidly eroding reserves that normally protect markets from supply shocks.The sharp decline in inventories has sparked growing concern across governments and energy markets, with more than a billion barrels of supply lost over the nearly two months of the near-closure of the Strait of Hormuz, leaving the system increasingly vulnerable. Analysts cited by Bloomberg have warned that easing protectionism not only increases the risk of higher prices and supply shortages in the near term, but also extends beyond the end of the conflict.Morgan Stanley data shows that global oil inventories fell by about 4.8 million barrels per day between March 1 and April 25. This represents a faster decline than any previous quarterly decline recorded in IEA data. Crude oil accounted for nearly 60% of the decline, while refined products accounted for the rest of the decline.
Depleting stocks amid the heat of the Middle East
Experts say that oil systems cannot operate without maintaining minimum stock levels, which means that the so-called “operational minimum” is reached long before stocks reach zero.
“Inventories act as a shock absorber for the global oil system,” said Natasha Caneva, head of global commodities research at JPMorgan Chase & Co. “It is not possible to withdraw every barrel,” she added.JP Morgan warns that OECD stocks could reach “operational stress levels” early next month if the Strait of Hormuz remains closed, and then fall further to “operational minimum” levels by September.Goldman Sachs Group has noted some decline in the pace of withdrawals in recent days, citing weak demand from China, which has left more supply available globally.However, global visible oil inventories are already near their lowest levels since 2018, according to the bank.Asia faces increasing pressureThe most pressing pressures appear in Asian countries that depend on fuel imports. Traders identify Indonesia, Vietnam, Pakistan and the Philippines as most at risk, with shortages likely within a month.Bloomberg reported that major economies such as China currently still enjoy better supplies.In contrast, Asia-Pacific inventories outside China have fallen sharply, by about 70 million barrels since the conflict began, according to Kiros co-founder Antoine Halfe.Japan and India are now at their lowest seasonal levels in at least a decade, with inventories down 50% and 10% respectively. Supplies of naphtha and LPG, the main inputs for petrochemicals, have also been significantly reduced.Some governments assert that reserves are still sufficient.
Pakistan’s oil minister said in late April that the country had about 20 days’ worth of commercial reserves of refined products, while India’s petroleum ministry said on May 3 that crude oil stocks at refineries were sufficient, although refiners privately admitted to withdrawing large amounts of stock.Gasoline shortages in Asia are likely to emerge first, and Pakistan, Indonesia and the Philippines will be among the countries most at risk, Frederic Lasser, head of research at energy trader Gunvor, told Bloomberg.He added that if the Strait of Hormuz remains closed until early June, parts of Asia could face a macroeconomic shock due to gasoil shortages, while Europe may have a slightly longer window before severe disruption occurs.US inventories are falling below historical levelsThe United States, increasingly acting as a supplier of last resort, has also seen its inventories fall below historical averages due to strong exports.US crude inventories, including the Strategic Petroleum Reserve, fell for the fourth week in a row.
Distillate inventories are at their lowest levels since 2005, while gasoline inventories are near seasonal lows last seen in 2014.Although US producers are increasing production, executives point out that inventories are still likely to decline in the near term.Europe is running out of aviation fuelIn Europe, jet fuel has emerged as the most restricted product.Shares in the Amsterdam-Rotterdam-Antwerp hub have fallen by a third since the war began, hitting their lowest level in six years, according to Insights Global.“Since February, we have seen a steady decline in jet fuel inventories,” said Lars van Wageningen, director of research and consulting at Insights Global. He added that competing demand from Asia and Australia increases the availability of the product.While supply remains adequate in the short term, he warned that stocks could reach critical levels within five months as demand rises in the summer. The United Kingdom, Germany and France are considered most at risk due to high consumption and limited production.High prices and economic risksThe conflict has already pushed up crude oil and fuel prices, increasing inflationary pressures and increasing the risk of a global economic slowdown.Global demand for oil declined due to rising prices and supply disruptions. However, analysts say further demand cuts may be needed if inventories continue to shrink.“A lot of inventory and spare capacity have already been exhausted,” Chevron Chief Financial Officer Emer Bonner said.
“We will start to see some import-reliant countries potentially start to experience severe shortages as we get into the June to July time frame.”
Strategic reserves are being deployed
Governments have already pledged to release about 400 million barrels of emergency reserves coordinated by the International Energy Agency.So far, the United States has used 79.7 million barrels of its 172 million barrels pledged, to balance market stability while preserving strategic reserves.
The US Strategic Petroleum Reserve could fall to its lowest level since 1982 if it is fully deployed.Germany has begun reissuing crude oil and jet fuel not covered in previous issues, and has indicated further action if shortages worsen.However, policymakers face a dilemma: Releasing more inventories may temporarily cushion prices but further weaken the global safety barrier.Analysts expect inventory to continue to be depleted in the coming months, followed by a restocking phase once conditions stabilize.“We expect this inventory shedding environment to continue over the coming months, ultimately leading to a long-term restocking phenomenon,” said Willy Chiang, CEO of Plains All American Pipeline LP.He added that after the conflict, countries could rebuild strategic reserves above pre-war levels, which could add a new layer of demand pressures on global oil markets.