The International Energy Agency (IEA) has reported that global oil inventories are declining at an unprecedented pace, driven by the ongoing conflict in Iran. According to the agency's monthly report, observed inventories fell by approximately 4 million barrels per day during March and April. This decline is expected to persist for months as disruptions to Middle Eastern supplies intensify.
Record Inventory Drawdown
The IEA, which coordinates the release of emergency fuel stocks from major economies such as the United States, Japan, and Germany, warned that the market will remain severely undersupplied until at least October, even if the conflict ends next month. The drawdown is the fastest on record, with global supplies dropping by an additional 1.8 million barrels per day in April alone, bringing total losses since February to 12.8 million barrels per day.
Impact of Strait of Hormuz Closure
The crisis has effectively shut down the Strait of Hormuz, a critical chokepoint connecting Persian Gulf oil producers to international markets. Toril Bosoni, head of the IEA's oil markets and industry division, stated that even if a resolution is reached, it will take weeks or months to restore normal flows through the strait. She warned that prolonged disruptions and rapid inventory declines will increase pressure on oil prices.
Demand Slump and Price Volatility
The conflict has also taken a toll on global oil demand. The IEA has slashed its demand projections for the third consecutive month, forecasting a drop of 2.45 million barrels per day in the current quarter—the steepest decline since the COVID-19 pandemic in 2020. This is attributed to cutoffs in product flows and soaring prices. International oil futures hit a four-year high of over $126 per barrel in London last month, though prices have since eased to around $106 per barrel as diplomatic efforts remain deadlocked.
Signs of Slowing Drawdown
Goldman Sachs Group Inc. noted some indications that the inventory drawdown may have slowed in recent days, pointing to weaker demand from China. However, the IEA report highlights that the steepest losses are in the petrochemical sector, where feedstock availability is increasingly constrained, and aviation activity remains well below normal levels.
Emergency Reserves and Alternative Flows
In March, the IEA oversaw a pledge by member nations to deploy a record 400 million barrels from emergency reserves. These stocks are now moving from storage sites into markets. Additionally, increased flows from the Atlantic Basin—led by producers such as the United States, Brazil, Canada, and Venezuela—are partially alleviating the deficit in hard-hit Asian markets.
Outlook for 2027
The IEA delayed its annual outlook for 2027, originally scheduled for April, due to the war. The agency now plans to publish the report next month.
