Brent crude fell to roughly $95 per barrel and West Texas Intermediate to $91 on Monday, extending last week’s 5% decline as reports of U.S.-Iran negotiations raised hopes of a Strait of Hormuz reopening. The decline in price has only masked, but not resolved, the underlying physical crisis.
In a CNBC interview, Carlyle’s chief strategy officer of energy pathways Jeff Currie said Asian oil inventories have reached “tank bottoms” — the minimum operating levels required to keep pipelines and storage systems running — and that Europe is not far behind. Headline global inventory figures, Currie warned, can be misleading: much of the world’s oil stockpile cannot be used immediately because it is needed to keep the system itself functioning. The usable margin is far thinner than the official numbers suggest.
As the IEA warned last week, and as the agency’s May Oil Market Report details, the cumulative oil-liquids deficit is now projected to reach 900 million barrels by September. Rebuilding the world’s strategic reserves alone, IEA Executive Director Fatih Birol has noted, would require roughly an additional million barrels per day of supply for three years on top of underlying demand growth — a structural commitment well beyond what is currently in the market.
Market prices go down in light of diplomatic possibilities, while the physical economy is running on emergency drawdowns of finite reserves. Can these two trends coexist?