The International Energy Agency (IEA) has issued a warning that global oil inventories are depleting at a record pace due to escalating supply disruptions in the Middle East stemming from conflict involving Iran, and this trend is expected to persist for months. Even if the conflict were to end next month, the market would face "severe undersupply" until at least October.
Inventories are being drawn down at a rate of 4 million barrels per day. In its latest monthly report, the IEA noted that observed global oil inventories fell by approximately 4 million barrels per day in March and April of this year. This rate of decline is the fastest on record for the agency. Since the conflict escalated in February, cumulative supply losses have reached 12.8 million barrels per day. In April alone, global supply contracted by a further 1.8 million barrels per day.
The Strait of Hormuz, which connects the Persian Gulf to international markets, is the world's most critical oil transit chokepoint, handling about one-third of global seaborne oil trade daily. The IEA stated that the ongoing conflict has left the strait "effectively closed," severely restricting exports from Gulf producers like Saudi Arabia, the United Arab Emirates, and Iraq.
Toril Bosoni, head of the IEA's Oil Markets and Industry Division, commented in an interview: "Even if the conflict is resolved, we believe it will take weeks or even months for the Strait to return to normal operations. The longer the disruption lasts and the faster inventories are drawn down, the more pressure we will see on prices."
Demand suffers its biggest hit since the pandemic. Concurrently with the supply shock, the demand side has also been severely impacted. The IEA has lowered its forecast for global oil consumption for the third consecutive month. The report indicates that, due to disruptions in refined product supply and soaring prices, global oil consumption this quarter is projected to plunge by 2.45 million barrels per day, marking the largest quarterly drop since the COVID-19 pandemic in 2020.
The report specifically noted: "The petrochemical sector has been hit hardest, facing increasingly tight feedstock supplies. Aviation activity also remains far below normal levels."
Driven by what the report describes as the largest supply disruption in history due to the conflict, the price of London Brent crude futures surged above $126 per barrel last month, reaching a four-year high. Prices have since retreated, trading near $106 per barrel on Wednesday (May 13th), as diplomatic talks between the US and Iran have yet to yield a breakthrough.
Over 1 billion barrels of supply evaporated. The IEA stated that this supply shock has cumulatively removed over 1 billion barrels of oil from the market, completely erasing all pre-conflict expectations for a global supply surplus this year.
To help bridge the gap, the IEA coordinated a commitment in March from its member countries, including the United States, Germany, and Japan, to release a record 400 million barrels of oil from emergency reserves. These reserves are currently flowing from storage facilities to the market.
The report points out that the Atlantic Basin—led by producers like the United States, Brazil, Canada, and Venezuela—is increasing supplies to the "hard-hit" Asian market, partially alleviating the supply-demand imbalance. However, the overall market remains in a state of deep shortage.
The IEA mentioned that its annual Oil Market Outlook report for 2027, originally scheduled for April release, has been postponed to next month due to the war. Goldman Sachs Group noted that recent signs suggest the pace of inventory drawdown has moderated slightly, attributed to weakening demand in China.
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