Global oil supply buffer shrinks after over 1 billion barrels withdrawn

The global oil market's supply buffer has significantly diminished following the withdrawal of more than 1 billion barrels from commercial inventories to counteract the Middle East crisis, making the market more exposed to further supply disruptions. Saudi Aramco's CEO, Amin Nasser, revealed this at the Energy Intelligence Forum in London, explaining that much of the remaining oil in storage is not easily accessible to the global market.

This reduction in the buffer occurs as governments and energy firms increasingly depend on stored oil to mitigate supply disruptions triggered by Middle Eastern and Ukrainian conflicts. The Group of Seven nations alongside their allies have pledged to release up to 100 million barrels of crude oil and diesel from emergency reserves.

These withdrawals have diminished the volume of oil available as a safety net against additional disruptions, with much of the remaining inventory proving difficult to bring to market. Nasser highlighted these inventories as one of the critical last tools at the global market's disposal to manage large-scale supply shocks, raising alarms about the market's capacity to handle another major shock.

As of now, global oil demand stands at approximately 102 million barrels per day, based on the International Energy Agency's data, illustrating the extent of consumption relative to the emergency stocks available to governments.

Even with the planned release of up to 100 million barrels by the G7 and its partners, this amounts to less than a day's worth of global oil consumption, although the stocks are anticipated to be released gradually and directed towards regions experiencing the most severe shortages. Nasser mentioned that reaching an agreement on the 100 million-barrel release was challenging due to the already strained inventories.

The shrinking global oil supply buffer, amidst recovering crude flows from the Middle East through the Strait of Hormuz to near pre-war levels, is compounded by depleted inventories, reduced refined-product flows, and elevated oil prices. This scenario means that another significant disruption could leave the global market with substantially reduced capacity to absorb the shock.