Iran war is draining world’s oil buffer at an unprecedented pace

The world has burned through oil inventories at a record speed as the Iran war throttles flows from the Persian Gulf, eating into the very buffer that protects against supply shocks. The rapidly shrinking stockpiles mean that the risk of even more extreme price spikes and shortages is getting ever-closer, leaving governments and industries with fewer options to cushion the impact of the loss of more than a billion barrels of supply, two months into the near-closure of the Strait of Hormuz. The sharp depletion will also mean the market stays vulnerable for longer to future disruptions even after the conflict ends. Morgan Stanley estimates global oil stockpiles dropped by about 4.8 million barrels a day between March 1 and April 25 — far exceeding the previous peak for a quarterly drawdown in data compiled by the International Energy Agency. Crude accounts for almost 60% of the decline, and refined fuels the rest. Crucially, the system also requires a minimum level of oil, which means that the “operational minimum” is reached long before the inventories actually hit zero, said Natasha Kaneva, JPMorgan Chase & Co.’s head of global commodities research. “Inventories are acting as the shock absorber of the global oil system,” she said. But “not every barrel can be drawn.” There are some signs that the drawdown may have slowed slightly in recent days, according to Goldman Sachs Group Inc., which pointed to weaker demand from China, the world’s top oil importer — leaving more available for other buyers. Still, global visible oil stocks are already close to their lowest since 2018, the bank said. Estimating global inventories involves both art and science. A large part are strategic caches of crude and fuel controlled by governments, either directly or by requiring the industry to maintain a level of reserves that can be released when needed, or a combination of the two. But there’s also a huge amount in commercial stockpiles — the inventories of oil producers, refiners, tr