{"id":803947,"date":"2026-05-18T00:37:11","date_gmt":"2026-05-18T00:37:11","guid":{"rendered":"https:\/\/www.europesays.com\/us\/803947\/"},"modified":"2026-05-18T00:37:11","modified_gmt":"2026-05-18T00:37:11","slug":"oil-shortage-scenario-looms-large","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/803947\/","title":{"rendered":"Oil Shortage Scenario Looms Large"},"content":{"rendered":"

The world is running out of oil. Implausible three months ago, the likelihood of a crude shortage on a global scale is becoming increasingly realistic with each day that the Strait of Hormuz remains almost completely blocked. Analysts are no longer modeling for a swift end to the war between the United States, Israel, and Iran. They are now also allowing for an extended period of severe energy flow disruptions\u2014and it is not looking good.<\/p>\n

Kpler reported<\/a> earlier this month the cumulative loss of oil supply in the Middle East since February 28 had hit 782 million barrels as of May 8 and was on track to expand to 1 billion barrels by the end of the month. In daily output terms, the picture looks no better. Saudi Arabia is losing over 3 million barrels daily, Iraq is producing 2.88 million barrels daily less, and Iran is at 1.69 million barrels daily lower output, while Kuwait has suffered a decline of 1.75 million barrels daily.<\/p>\n

With so much production offline, the most sensible thing to do is tap reserves. Estimated at record highs, the world\u2019s oil stocks were cited as a big reason for predictions of a severe glut that could exceed demand by almost 4 million barrels daily<\/a>, according to the International Energy. But that was before the war began. Now, the IEA is warning<\/a> that demand for oil will exceed supply this year.<\/p>\n

In its latest monthly report, the IEA said it expected global oil supply to fall by some 3.9 million barrels daily over the current year\u2014which is a lot less than what the actual current supply loss is from the Middle East. The IEA estimates that loss at 10.5 million barrels daily. Yet while supply falls by 3.9 million barrels daily\u2014which may turn out to be an optimistic scenario\u2014demand would only fall by 420,000 barrels daily, according to the international authority on energy.<\/p>\n

\u201cYou can only decrease consumption so much, and when inventories run out, they are going to run out,\u201d Ellen Wald, senior fellow at the Atlantic Council\u2019s Global Energy Center, told<\/a> the Wall Street Journal this week. \u201cAt some point the market is going to collide and prices are going to shoot up.\u201d<\/p>\n

This echoes the warning that Aramco\u2019s chief executive issued<\/a> earlier in the month, saying global onshore inventories of fuels were depleting at record speed. These inventories are \u201cthe only buffer that is available today\u201d, Amin Nasser said, as quoted by the Financial Times, but they are \u201cmaterially depleted\u201d.<\/p>\n

JP Morgan\u2019s commodity analysts also joined the chorus of warnings, saying that by next month, commercial oil inventories in, per the FT, the developed world could \u201capproach operational stress levels\u201d, meaning supply loss could become a lot less manageable than it is now.<\/p>\n

\u201cOur conclusion is that one way or another the strait reopens in June,\u201d JP Morgan\u2019s Natasha Kaneva said, as an end to the war would be the only way the world avoids the shortage scenario. If that does not happen, \u201cThe next phase of this shock may look less like a traditional crude spike and more like a refining and end-user fuel crisis,\u201d the bank\u2019s head of global commodities strategy said, noting that only a \u201cclear, credible announcement, ratified and confirmed by both sides\u201d would calm markets.<\/p>\n

Adding to the pessimism, Aramco\u2019s Nasser pointed out in his recent comments that traders may be overestimating the availability of oil in storage. Not all of the barrels that are counted as being in storage are actually accessible, he said. In fact, only a fraction of it is accessible. \u201cThe rest is locked up in pipeline fill, minimum tank levels and other day-to-day operational constraints.\u201d There are also limits to how much oil one can draw from storage on a daily basis. \u201cIn Europe and the US, the maximum you can pull out from there is 2mn barrels a day,\u201d Aramco\u2019s chief executive said.<\/p>\n

According to Kpler, inventory drawdowns are moderate for now. The firm estimated cumulative draws from onshore storage at 60 million barrels since late March, which leaves 3 billion barrels still in storage\u2014or whatever fraction of that volume is accessible. Yet the longer the supply outage in the Middle East continues, the more barrels would need to be drawn from storage, while there is no supply to replenish them in a timely manner. In other words, the storage cushion will get thinner if the war continues beyond this month.<\/p>\n

In somewhat positive news, however, traders have gotten used to the situation. According to the Wall Street Journal, the draws from inventories had helped cushion the supply outage blow and now panic is getting replaced by scarcity management\u2014which will involve higher prices.<\/p>\n

\u201cThe urgent, immediate grab for physical cargoes has died down,\u201d Hamad Hussain, commodities economist at Capital Economics, told the publication. \u201cHowever, we are drawing down those stocks pretty quickly, and as a result, prices will have to rise as a direct consequence of that.\u201d<\/p>\n

By Irina Slav for Oilprice.com<\/p>\n

More Top Reads From Oilprice.com<\/strong><\/p>\n

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