Brent crude fell 2.4% to $97.93 a barrel on Tuesday and WTI dropped to $87.30 as more tankers made it through the Strait of Hormuz. Saudi Aramco's chief executive says that relief only goes so far. Getting oil moving again is one job. Refilling the world's drained storage tanks is a second, much longer one.
Amin Nasser made the case on Monday at an industry conference in London, the Energy Intelligence Forum. Even after the strait is completely open, he said, restocking storage while keeping up with daily consumption "could take up to two years." He described the world's supply buffer as "scarily thin."
"The system is already straining," Nasser said.
How big the hole is
Nasser gave a rough tally of the damage since the conflict with Iran began seven months ago:
- Close to 3 billion barrels of output never reached buyers. That's roughly half of the crude and fuel that would normally have moved through Hormuz in that time.
- Over 1 billion barrels came out of storage to cover the shortfall. Governments chipped in north of 300 million barrels from their emergency stockpiles.
- Under 6 billion barrels of commercial inventory are left, down from about 10 billion in total stocks when the crisis started.
Six billion barrels sounds like plenty. It covers about 60 days of global demand, which runs just over 100 million barrels a day. But Nasser said up to 90% of what's left sits inside pipelines or serves as the minimum fill that tanks need to work. That oil can't actually be sold.
Why it takes two years
To rebuild stocks, producers have to pump more than the world burns. Nasser estimated that restocking alone would add about 2 million barrels a day to demand for a year and a half. Over that stretch, the math works out to about 1.1 billion barrels, close to what's been drawn so far.
Saudi Arabia says it can help. Nasser said the kingdom's maximum sustainable capacity of 12 million barrels a day could be brought online within days. Getting it to buyers is harder. Gulf shipments averaged 15.5 million barrels a day in September, Bloomberg tanker data shows. That was the most since the fighting started, but still only around 80% of normal.
Aramco's East-West pipeline to the Red Sea, with capacity of 7 million barrels a day, has done much of the heavy lifting. Without it, Nasser said, Brent futures "would have hit $200 per barrel." Brent actually peaked at $126 in late April. Aramco is studying more export routes and overseas storage.
Fuel is the weak spot
Until the strait is completely open and shippers trust it again, Nasser said, "pressure at both ends of the barrel will intensify." Refined fuels have climbed faster than crude. Damaged refineries in the Gulf and China's suspension of most fuel exports for October have kept diesel short, and US retail diesel set a record $6.53 a gallon last month.
Compare the emergency response with his numbers. The G7's new release of up to 100 million barrels over four months equals about a tenth of what has already been drawn from stocks.
Traders focus on the barrels moving now
The market isn't pricing a two-year squeeze yet. Brent has slid from $102.25 at Friday's settlement as Gulf exports pick up. Saudi Arabia also cut its November price for Arab Light crude to Asia to $5 below the regional benchmark, the widest discount since June 2020, in a bid to hold on to buyers.
If Nasser is right, lower prices today don't mean the shortage is over. Thin stocks leave little room to absorb the next tanker attack or refinery outage.
What to watch
- EIA weekly inventory report on Wednesday, for signs of how fast US stocks are draining or rebuilding
- October Gulf export data, and whether shipments get closer to pre-crisis levels
- G7 diesel deliveries within the promised 20-day window