Depleted Global Stocks Set Higher Floor Under Oil Prices

Global oil stocks have dwindled to the point where they set a higher floor for oil prices amid the ongoing Iran war, industry executives warned. The conflict, now in its eighth month, has depleted the world's buffers against supply shocks from the Middle East, making the market more susceptible to disruptions. Despite crude oil flows remaining higher than pre-war levels, shipping, trade routes, and tanker costs have become abnormal, contributing to tighter markets.

Eight months ago, the world was on track for a supply surplus, but the crisis has eliminated that extra crude supply and thinned out the buffers needed to protect against such shocks. The G7 recently released 100 million barrels of crude oil and diesel, but this move didn't significantly lower Brent oil prices, as the market remains wary of further thinning of the safety cushion.

Chevron CEO Mike Wirth noted that the underlying fundamentals are becoming increasingly tighter, with each cycle adding a bit more sensitivity to the system. Vitol Group's CEO, Russell Hardy, explained that 14 million barrels a day were exiting the Middle East in the last week, which could push prices to $200 per barrel if the flows stop.

The world is now at its limits for releasing oil stocks, with most of the remaining reserves practically unavailable due to operational constraints. With only about 6 billion barrels of commercial inventories left, the system is already strained, and the supply resilience cushion is dangerously thin. As the world faces this crisis, many hope the war will end, but the reality is that there are few barrels left to spare to offset supply disruptions, keeping oil prices elevated.