One billion barrels missing.. Oil markets after withdrawing from stocks economy

The global economy has weathered the largest oil supply disruption in history during the Iran war, but the depletion of strategic reserves and the slow recovery of energy infrastructure raise fears of a new wave of price hikes if the disruptions are renewed, according to an analysis by Reuters.

Iran’s closure of the Strait of Hormuz following the US and Israeli strikes in late February led to the loss of more than one billion barrels of supplies within 4 months, while losses at the peak of the crisis amounted to about 14 million barrels per day, according to the International Energy Agency.

Despite this, the world has not witnessed a widespread fuel crisis, as Brent crude oil has now declined to levels lower than those recorded before the outbreak of war, after reaching its peak near $126 a barrel in April.

The World Bank’s chief economist, John Bavis, said that the markets considered the turmoil serious but containable, given that the energy markets and the global economy enjoyed greater flexibility compared to previous crises.

3 factors

Reuters attributed exceeding the worst-case scenarios to three main factors: the success of Saudi Arabia and the UAE in using alternative export routes, the decline in Asian demand led by China, in addition to the extensive withdrawal from global oil reserves.

At the outbreak of the war, China possessed about 1.4 billion barrels of stored oil, which exceeds the total strategic reserves of all member states of the International Energy Agency. The spread of electric cars and improved demand management also helped ease pressures in the largest oil importing country.

At the same time, the International Energy Agency released about 400 million barrels of strategic reserves, providing additional supplies that calmed market fears during the crisis period.

Despite the resumption of production and exports in Saudi Arabia, Kuwait, Qatar, Iraq and Bahrain, Reuters indicates that repairing the damage to the energy infrastructure may take years, while negotiations between Washington and Tehran on a permanent agreement are still faltering as disputes continue over the Iranian nuclear program.

The record withdrawal from stocks has also reduced the margin of safety in the oil market, increasing the possibility of sharp price fluctuations in the future if supplies are exposed to any new disruptions.

Reuters calculations indicate that every five-dollar increase in the price of a barrel of oil adds about $190 billion to the annual costs of the global economy, while the cost of rebuilding global oil reserves may exceed $70 billion at current prices.

Japan’s reserves

In this context, Japan announced that its strategic oil reserves had recovered by July 3 to the equivalent of 200 days of domestic consumption, after declining by the equivalent of 27 days in April, five days in May, and four days in June.

The Japanese Ministry of Economy, Trade and Industry confirmed that it had not taken decisions to withdraw additional quantities of stocks during May or June, indicating that the country has sufficient supplies to meet domestic demand.

The ministry added that it is cautiously following developments in the Strait of Hormuz, at a time when Iranian and Western sources revealed that Tehran has begun talks with Japanese companies to resume oil exports, while potential buyers are demanding longer guarantees regarding US exemptions and safety of navigation before resuming imports.