Saudi Aramco warns fuel stocks heading for ‘critically low levels’

Saudi Aramco has warned that the world’s stocks of gasoline and jet fuel could reach “critically low levels” ahead of the summer months if the Strait of Hormuz remains closed, in a pointed intervention by the world’s largest oil company.

Amin Nasser, Saudi Aramco’s chief executive, said on Monday that the depletion of “onshore inventories” was “rapidly accelerating” with refined fuels like gasoline and jet fuel showing the fastest decline.

He added that since the start of the Iran war and the near closure of the Strait of Hormuz, the world had lost a cumulative 1bn barrels of oil supplies, with another 100mn barrels lost every week that the strait stays closed.

Inventories are “the only buffer that is available today” but they have been “materially depleted”, Nasser said.

Nasser’s comments, which he made after the company reported an increase in earnings in the first three months of the year, add to a chorus of voices warning that the oil shock created by the Iran war could be on the brink of a new and more disruptive phase.

Oil prices have swung wildly in the last 10 weeks, rising as high as $126 a barrel in late April before falling back towards $100 a barrel, as the Trump administration has signalled it is looking for a long-term resolution to the conflict.

But the closure of the strait, through which a fifth of global oil supplies normally flow, has already forced some Asian countries to curtail demand while western countries have had to lean more heavily on commercial and strategic reserves.

JPMorgan warned on Monday that commercial oil inventories in the developed world could “approach operational stress levels” by early June, limiting the world’s ability to keep absorbing the loss of Middle Eastern supplies by drawing oil out of storage.

The Wall Street bank’s analysts said this could force an agreement between the US and Iran, despite the White House and Tehran remaining at loggerheads over a prospective peace deal.

The alternative would be a further sharp increase in refined fuel prices, which could stoke inflation globally.

“Our conclusion is that one way or another the strait reopens in June,” said JPMorgan head of global commodities strategy Natasha Kaneva, though she cautioned the market would only trust a “clear, credible announcement, ratified and confirmed by both sides”.

“The next phase of this shock may look less like a traditional crude spike and more like a refining and end-user fuel crisis.”

Aramco’s Nasser warned that energy traders risked overestimating how much oil was still available to be drawn from storage, given most monitoring of inventories did not account for the oil necessary to keep the 100mn barrel-a-day global market operating.

“The aggregate inventory level globally is not a proper reflection of the current physical market tightness that we see,” said Nasser.

Only a fraction of oil is accessible, he said. “The rest is locked up in pipeline fill, minimum tank levels and other day-to-day operational constraints.”

The International Energy Agency is coordinating the largest release of strategic oil reserves in its history in an effort to manage the impact of the Iran war.

But such strategies are limited by the speed at which countries can draw on their reserves.

“In Europe and the US, the maximum you can pull out from there is 2mn barrels a day,” Nasser said.

Aramco’s chief executive warned in March of “catastrophic consequences” for the world economy if the US-Iran war dragged on. If the strait is still closed by mid-June, oil markets may continue to be unstable into next year, he said on Monday.

“The longer the supply disruptions continue, even for another few more weeks, it is going to take much longer for oil markets to rebalance and stabilise,” said Nasser.

While Saudi Aramco could reach its maximum sustainable oil production of 12mn barrels a day if the strait reopens, Nasser said, he suggested other countries will struggle to crank up production rapidly.

Aramco’s earnings in the first three months of the year rose as higher oil prices and the ability to redirect oil exports from the Gulf to its Red Sea port offset lower overall exports since March.

Nasser said on Monday that Aramco is considering expanding its oil export capacity at Yanbu on the Red Sea, in a sign the company — the main source of funds for the Saudi government — is looking at reducing its reliance on exporting via Hormuz.