US President Donald Trump himself has expressed alarm, justifying the deal with Tehran in part because of the need to avoid a crunch in stored oil. “We run out of reserves in about four weeks,” he said on Jun 17. “We would really run out and there’ll be a time when you wouldn’t be able to get it. And do you want to see bedlam?”
Cherry pick a few data points and it’s easy to paint a bleak picture. The US Strategic Petroleum Reserve is, for example, at its lowest level since 1983. Crude stocks in Cushing, an oil-storage hub in Oklahoma, are at a 10-year low. (The drawdown of stocks has been geographically uneven, with the US shouldering a larger share. Asia and, to a lesser extent, Europe have drawn less.)
Listen to the oil bulls – the same group of long-only investors that has been screaming “US$200 a barrel is coming!” since late February – and the warnings are everywhere: Global oil inventories are at a record low; the world is running on fumes; tank bottoms are here.
MISJUDGING TWO KEY FACTORS
Well, not so fast. For starters, the world’s inventories have fallen by about half of what many anticipated earlier on the conflict. The balance between supply and demand has been looser than expected thanks to the use of bypass pipelines around the Strait of Hormuz, clandestine shuttle oil tankers crossing the waterway in far greater numbers than anticipated, lower imports by China and surging production in the Americas, from Canada to Argentina.
The tank bottoms narrative misjudges two critical factors. First, it glosses over the huge accumulation of oil stocks in China over the last decade that today provides an impressive cushion. Before the war broke out, Beijing had more than 1,400 million barrels in strategic stocks; since then it has drawn, perhaps, about 100 million barrels or so. China still has plenty in reserve to keep its imports below pre-war levels.
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