IEA Sounds Alarm as Commercial Oil Stocks Near Exhaustion Amid Iran Conflict

Commercial oil inventories stand on the brink. Fatih Birol, executive director of the International Energy Agency, delivered the warning Monday on the sidelines of a Group of Seven finance ministers meeting in Paris. “I think it is depleting very fast,” he said. It will last “several weeks, but we should be aware of the fact that it is declining rapidly.”

The comments echo those Birol made last week. They come as the agency’s latest data shows global observed inventories, including oil on water, drew down by 250 million barrels over March and April. That works out to 4 million barrels per day. On-land stocks dropped even faster. OECD commercial inventories alone plummeted by 146 million barrels in April.

Record Draws Meet Geopolitical Shock

The depletion traces directly to the conflict that began in late February with U.S. and Israeli strikes on Iran. The Strait of Hormuz, vital chokepoint for roughly one-fifth of global seaborne oil, effectively closed to routine shipping. Gulf producers saw output collapse. Cumulative supply losses from the region now exceed 1 billion barrels. Total Middle East production sits 14.4 million barrels per day below pre-war levels.

Yet the physical market tells one story. Futures markets tell another. Birol highlighted “a perception gap in the markets between the physical markets and the financial markets” for oil. Before the attacks, a major surplus existed and commercial inventories sat at comfortable heights. The war changed that picture almost overnight. (Reuters)

Releases from strategic petroleum reserves have helped bridge the gap. Coordinated action by IEA member countries added 2.5 million barrels per day to available supply. Some 164 million barrels had been withdrawn by early May. But those buffers “are not endless,” Birol cautioned. (Bloomberg)

The IEA’s May Oil Market Report lays out the numbers in stark detail. Global oil supply fell another 1.8 million barrels per day in April, reaching 95.1 million barrels per day. Losses since the conflict began total 12.8 million barrels per day. For the full year 2026, the agency now projects supply to average 102.2 million barrels per day, a decline of 3.9 million barrels per day from pre-war expectations. (IEA Oil Market Report – May 2026)

Demand hasn’t escaped the pressure. The IEA forecasts world oil demand to contract by 420,000 barrels per day this year, to 104 million barrels per day. That represents a 1.3 million barrel-per-day downgrade from forecasts made before the fighting. The second quarter sees the sharpest drop, with demand falling 2.45 million barrels per day year over year. Higher prices, weaker economic activity, flight cancellations and curtailed petrochemical output all play a role. Summer travel and planting seasons in the Northern Hemisphere will only accelerate the drain on remaining stocks.

Refiners feel the pain too. Crude throughputs are expected to plunge 4.5 million barrels per day in the second quarter. Full-year refining runs drop 1.6 million barrels per day to 82.3 million. Infrastructure damage, feedstock shortages and export restrictions in the Gulf explain much of the decline. Yet refining margins have soared. Middle distillate cracks reached record levels as diesel, jet fuel and gasoline supplies tightened.

Prices reacted with volatility. North Sea Dated crude averaged $120.36 per barrel in April, up $16.50 from the prior month. Intramonth swings approached $50 per barrel at one point. Time spreads hovered near $5 per barrel while the premium of physical Dated over ICE Brent futures narrowed dramatically.

The U.S. Energy Information Administration offers a similar grim outlook. It expects global inventories to fall by an average 8.5 million barrels per day in the second quarter, pushing Brent prices to around $106 per barrel in May and June. The agency assumes gradual reopening of the Strait from late May or June, with production recovery stretching into 2027. Even then, inventories won’t rebuild meaningfully until next year. (EIA Short-Term Energy Outlook)

So far, alternative supply has stepped in where possible. Atlantic Basin producers ramped up exports by 3.5 million barrels per day since February. The Americas as a group now forecast 600,000 barrels per day more supply growth for 2026. Russia, Kazakhstan, Venezuela and others redirected cargoes. Importing nations cut purchases sharply. China, Japan, South Korea and India reduced imports by a combined 7.26 million barrels per day in the early months of disruption.

But these shifts carry limits. Floating storage in the Middle East rose as tankers idled. On-land stocks outside the Gulf continued to fall. Visible non-OECD inventories dropped 24 million barrels in April. The market that entered the crisis in surplus now faces persistent deficits through the third quarter. Only in the final months of 2026 does the IEA see balance returning, assuming Hormuz traffic resumes.

Traders and analysts have watched the divergence between paper and physical markets with growing unease. Futures curves softened at times even as on-land commercial stocks in consuming nations evaporated at the fastest pace on record. That mismatch explains why Birol felt compelled to speak plainly at the G7 gathering. Policymakers there heard a message that summer demand could tighten the system further before any relief arrives.

Strategic stocks provided breathing room. Their release ranks among the largest in IEA history. Yet once those barrels flow into the market they cannot be replaced quickly. Commercial operators, meanwhile, have drawn down tanks built up during earlier periods of oversupply. Refiners in Asia and Europe now operate with thinner buffers than at any time in recent memory.

The coming weeks will test those buffers. Diesel demand for agriculture, gasoline for driving season, and jet fuel for any rebound in air travel all point higher. Fertilizer production, already strained, adds another call on middle distillates. Any delay in reopening the Strait or slower-than-expected repair of damaged Gulf infrastructure will intensify the pressure.

Oil traders have seen price spikes before. The current episode differs in speed and source. A sudden loss of 10 million-plus barrels per day from the world’s lowest-cost producer region leaves little margin for error. Inventories that once seemed ample now measure in weeks rather than months. And the seasonal calendar offers no mercy.

Birol’s warning carries weight precisely because it rests on observed data rather than models. The 250-million-barrel draw over two months confirms the physical reality. Further draws appear certain. How markets and governments respond in the narrow window that remains will shape energy costs, inflation readings and economic growth through the rest of the year.