Global oil stockpiles deplete at record pace as Middle East supply shock deepens

Global oil inventories are falling at a record rate as strategic reserves and commercial stockpiles are drained to offset lost supply from the conflict in the Middle East. This emergency drawdown is occurring simultaneously with the northern hemisphere's peak summer demand season, a period that typically sees inventory accumulation. The convergence of these factors is exacerbating physical shortages of jet fuel in Europe, naphtha in Asia, and crude oil in the United States.

According to TotalEnergies chief executive Patrick Pouyanne, global oil inventories have fallen by approximately 500 million barrels since the start of the war. The company estimates that stockpiles are being drawn down at a rate of between 10 and 13 million barrels daily. Rystad Energy estimates a total supply loss of roughly 600 million barrels since March, suggesting a potential global supply deficit of 1.2 to 2 billion barrels if tanker traffic remains disrupted until the end of June.

The situation is particularly acute because the crisis coincides with peak driving, farming, and air travel seasons. Institutions including the IEA, Kpler, Goldman Sachs, and the EIA are monitoring the situation closely. Historical data indicates that pre-war global inventories held over 90 days' worth of demand in 2021, but this has declined to below 80 days in 2022 and has continued to trend lower since.

Physical shortages are already materialising across key regions. Europe is facing jet fuel shortages leading to flight cancellations, while Asia is struggling with naphtha shortages affecting plastics production. In the United States, gasoline stocks as of 1 May were 4% below the five-year average and the lowest since 2014 for this time of year, standing at 219.8 million barrels. Additionally, Asian oil imports in April dropped by 30% year-on-year, reaching a decade low due to scarcity and higher prices.

Analysts warn that emergency drawdowns are unsustainable, with global inventories potentially dropping to 70 days of demand by 2027. Even in a benign scenario where hostilities end between now and mid-June, global inventories are projected to drop lower towards 2027. In the worst-case scenario, with tanker traffic remaining disrupted until the end of June or beyond, the impact on global supply could be severe.

Tensions remain high between the US and Iran, with no immediate resolution in sight. The US and Iran resumed mutual strikes despite a ceasefire, with reports indicating that talks are ongoing but nothing productive has yet come out of them. As the conflict persists, the chances of an adverse scenario materialising instead of a best-case development are growing with each passing day.