Global Oil Inventories Are Draining at a Record Rate, IEA Warns

More than ten weeks into the war in the Middle East, global oil inventories are being drained at a pace that is making energy traders reach for something stronger than coffee. The International Energy Agency (IEA) said on Wednesday that the market is likely to remain in deficit until the final quarter of the year, and renewed price volatility is looking increasingly likely.

According to preliminary IEA data, global oil stockpiles fell by 129 million barrels in March. Then they fell by another 117 million barrels in April. Both declines followed US and Israeli strikes on Iran and the subsequent disruption to Gulf exports through the Strait of Hormuz. The sharpest drops were recorded in OECD countries, where on-land inventories plummeted by 146 million barrels. Visible stocks in non-OECD economies fell by a further 24 million barrels.

The agency described the situation as an "unprecedented supply shock." Cumulative crude supply losses from Gulf producers have now exceeded one billion barrels, with more than 14 million barrels per day unable to leave the region.

In response, the IEA announced in March that it would release 400 million barrels from members' emergency reserves. Around 164 million barrels have already been drawn. But even that massive intervention has not been enough to stabilise prices. Oil markets have swung sharply amid uncertainty over diplomatic efforts between the United States and Iran to reopen the Strait and end the conflict. The price of North Sea Dated crude – a benchmark for physical near-term deliveries – dropped from a peak of 144 per barrel to be low 100, then climbed back again.

Producers are scrambling. Saudi Arabia and the United Arab Emirates have rerouted some exports through terminals outside the Strait. Producers in the Atlantic Basin, including the United States, have increased shipments to Asia. Russian exports have also increased, after repeated attacks on domestic refineries reduced local demand. Temporary US sanctions waivers have allowed more Russian cargoes onto world markets.

Demand, meanwhile, is taking a hit. Weaker economic activity and high fuel prices are weighing on consumption. End users are reducing consumption, and refiners have cut runs and sharply scaled back crude imports. The IEA now expects global oil demand to fall by 420,000 barrels per day in 2026, bringing it to 104 million barrels per day. That is a downward revision of 1.3 million barrels per day compared with what the agency expected before the Iran war.

The hardest-hit sectors? Petrochemicals and aviation. Higher prices and demand-saving measures are expected to further curb fuel use in the months ahead. The IEA said demand could begin to recover later in the year if an agreement is reached to gradually restore flows through the Strait of Hormuz from the third quarter onwards. However, supply is expected to recover more slowly, leaving the market in deficit until the final quarter of the year.

The agency's outlook is hardly comforting: with global oil inventories already drawing at a record clip, further price volatility appears likely ahead of the peak summer demand period. So fill up your tank now, or don't. Either way, the next few months are going to be a bumpy ride at the pump.