Global oil reserves approach operational limits as emergency releases continue

Global oil inventories are approaching critical operational minimums as international bodies continue to release emergency stocks to stabilise fuel markets. The International Energy Agency announced earlier this week that it would release an additional 100 million barrels of diesel, gasoline, and crude oil. This move is part of a broader plan agreed in March to release 400 million barrels in response to supply constraints in the Strait of Hormuz. However, industry experts warn that these continuous releases are rapidly depleting the world’s remaining supply cushion, raising concerns about the long-term resilience of the global energy system.

The United States has been a significant contributor to these emergency releases, drawing from its Strategic Petroleum Reserve. As of the start of October, US strategic reserves stood at 331.2 million barrels, marking the lowest level since 1983. This figure follows the latest release of over 9 million barrels, which was part of a 172-million-barrel commitment made earlier in the year. Analysts note that this level is dangerously close to the operational minimum for the storage infrastructure, which is estimated to be between 250 and 300 million barrels. Allowing inventory levels to fall near this threshold poses risks to the physical integrity of the storage system and limits the ability to respond to future supply shocks. Replenishing these stocks is essential to maintain functional emergency reserves.

The depletion of US reserves is part of a wider global trend. According to the IEA’s latest monthly oil report, global oil inventories dropped by 95 million barrels in August. This brings the total drawdown since February to 507 million barrels, equivalent to a daily reduction of 2.8 million barrels. While the IEA reported a positive offset in the form of a 23-million-barrel rise in OECD commercial inventories, this was largely negated by a 19-million-barrel draw in strategic reserves. The net effect is a continued downward pressure on total available supply, leaving the market with less buffer against further disruptions.

Amin Nasser, chief executive of Aramco, has voiced significant concern over the current state of global stocks. Speaking at the Energy Intelligence Forum in London, Nasser warned that the system is already straining and that the supply resilience cushion is scarily thin. He noted that replenishing drained inventories could take up to two years, and only after the Strait of Hormuz reopens. In the interim, the world is consuming its existing stocks, which exposes economies to more severe supply shocks if the current conflict persists into 2027. Nasser indicated that most of the over 1 billion barrels of crude drawn from inventories since the start of the war between the United States, Israel, and Iran came from commercial sources. This leaves less than 6 billion barrels in storage, a quantity that is required to remain in place to keep the global storage system functional.

Fatih Birol, head of the IEA, attempted to reassure markets by highlighting that member governments still hold significant publicly held emergency oil stocks. He stated that these reserves are equivalent to around 1.1 billion barrels, including over 200 million barrels of diesel. The IEA has indicated it stands ready to release more of these stocks if required. However, some observers argue that such statements may inadvertently heighten concerns rather than alleviate them, given that global inventories are already close to their operational minimums. Breaching this limit would effectively result in the loss of a functional global inventory system.

In response to the tightening supply, many countries, particularly in Asia, are accelerating efforts to build their own oil inventories. Asian economies are especially vulnerable to adverse events in the Middle East, as a large proportion of their oil imports originate from the region. With supply routes compromised, Southeast Asian nations have struggled to secure affordable fuel for their populations and industries. Nine governments from the region recently issued a statement outlining plans to support the development of national oil stockpiling systems and regional joint stockpiling on a voluntary basis. These measures aim to improve their capacity to respond to future crises. However, the oil required for these new stockpiles must be sourced from the market, where prices remain elevated. It may take considerable time before prices return to levels that are manageable for governments seeking to refill their storage facilities.