World News: World Burns Through Its Oil Safety Net at a Record Pace

 

 

“An underappreciated surplus of crude oil, sloshing around storage tanks and aboard ships, cushioned the global economy when the Persian Gulf closed 2 1/2 months ago.

 

That excess supply is now dwindling at a record pace, with oil executives and analysts predicting that a harsh reckoning is set to upend the relative calm in energy markets. Acute shortages of key fuels and soaring prices could emerge within weeks if the Strait of Hormuz remains shut.

 

The drawdown in private storage and government strategic reserves, along with a fall in demand because of the higher prices, has bought time and prevented oil prices from exploding. But it has left little margin for error in the months ahead.

 

"You can only decrease consumption so much, and when inventories run out, they are going to run out," said Ellen Wald, senior fellow at the Atlantic Council's Global Energy Center. "At some point, the market is going to collide and prices are going to shoot up."

 

Global oil inventories -- which include onshore tanks and oil floating on tankers at sea, and are a measure of the slack in energy markets -- have fallen at a record pace since the start of the war. They plunged by 250 million barrels over March and April, according to the International Energy Agency, a Paris-based club of energy-consuming nations. That is equal to around 2 1/2 days of global oil use.

 

The runway to avoid reaching critical levels -- known as tank bottoms in industry parlance -- is vanishing rapidly.

 

In a report titled "The illusion of plenty," JPMorgan Chase estimated that if the strait remains blocked, stockpiles in a group of wealthy nations could plunge to "operational stress levels" in early June, and to system-straining "operational floor level" by September.

 

The bank said it doesn't expect inventories to actually reach those levels because history suggests demand would be curtailed first.

 

The implications of an oil-supply shortage are vast.

 

Prices at the gas pump are touching their highest levels in years in the U.S. and could shoot higher when stocks run low.

 

Airlines are reorganizing flights to adapt to potential shortages of jet fuel. Central bank decisions over whether to raise interest rates will depend in large part on whether oil markets remain well supplied.

 

The chief executive of Saudi Aramco, Saudi Arabia's state-owned oil company, said this week that global stockpiles for refined products such as gasoline and jet fuel could reach "critically low levels" ahead of the summer driving and travel season.

 

The oil market's saving grace was the remarkable surplus it carried into the conflict, which cushioned the blow far better than some analysts predicted when the Strait of Hormuz first closed. Iran and Russia had millions of barrels of oil floating at sea, looking for buyers. U.S. Treasury waivers on sanctions of Russian oil unleashed a gusher of supply onto the market.

 

Another major part of the emergency backstop is coming from the U.S. and other Western governments. The 32 member nations of the IEA deployed roughly 164 million barrels through May 8, helping to offset the 10 million barrels a day lost in the Gulf. The IEA expects its members to release an additional 210 million barrels of government stocks through the end of July.

 

But releasing stocks isn't the same as replacing supply. It shifts the shortage problem into the future, when governments and companies will eventually have to rebuild depleted reserves. The IEA estimates that replenishing the cumulative deficit, including strategic reserves, would require roughly an extra one million barrels a day of supply for three years.

 

As a result of the inventory depletion, U.S. stocks of diesel are likely to fall below 100 million barrels, the lowest level since 2003, by the end of May, according to consulting firm Eurasia Group. Even-sharper declines are hitting Asia, the region most reliant on Persian Gulf exports before the war.

 

"Supply is unlikely to recover in the next few weeks or next few months, even if the strait opens tomorrow," said Tamas Varga, analyst at London-based oil broker PVM.” [1]

 

This is an amazing action of Iranian drone and missile swarms.

 

1. World News: World Burns Through Its Oil Safety Net at a Record Pace. Kantchev, Georgi.  Wall Street Journal, Eastern edition; New York, N.Y.. 15 May 2026: A7.