MONTREAL (Oil Monster): Global oil inventories could take up to two years to replenish even after major supply routes normalize, Saudi Aramco CEO Amin Nasser warned, highlighting the lasting damage caused by months of disruption around the Strait of Hormuz.
Speaking at the Energy Intelligence Forum in London on October 5, Nasser said the world entered the current crisis with nearly 10 billion barrels of total oil stocks.
Since then, almost 3 billion barrels of gross oil supply have been lost, while more than 1 billion barrels have been drawn from inventories to help offset the disruption.
Nasser said the prolonged disruption to the Strait of Hormuz exposed a critical weakness in global energy security: reported oil inventories are substantially larger than the volumes that can realistically be released into the market during a crisis.
Although the world entered the disruption with close to 10 billion barrels of oil stocks, Aramco estimates that less than 6 billion barrels of commercial inventories now remain.
Nasser cautioned that the vast majority of those remaining barrels are not practically available because inventories are required to keep refineries, pipelines, terminals and other parts of the energy system operating.
The result is a much smaller supply cushion than headline inventory figures may suggest.
Aramco estimates that nearly 3 billion barrels of gross crude oil and refined-product supply have been lost since the conflict began.
That represents roughly half of the crude and petroleum products that would normally have moved through the Strait of Hormuz over the same period, according to Nasser.
More than 1 billion barrels have been drawn from global stockpiles to compensate for the lost supply.
Much of that draw came from commercial inventories rather than government-controlled emergency reserves.
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Nasser warned that reopening the Strait of Hormuz alone would not immediately return global oil markets to normal.
Even after shipping conditions improve, producers would have to meet ongoing demand while simultaneously rebuilding inventories depleted during the crisis.
Aramco estimates that process could take as long as two years.
The warning suggests that inventory pressure could remain a feature of global oil markets well beyond any eventual normalization of physical shipping through the Gulf.
The warning comes as governments continue drawing on emergency petroleum reserves to relieve pressure on crude and refined-product markets.
Group of Seven countries recently agreed to make another 100 million barrels of crude oil, diesel and other petroleum stocks available.
Earlier in the conflict, International Energy Agency members agreed to release 400 million barrels from emergency inventories.
Nasser argued that such releases can help bridge short-term disruptions but cannot replace the physical production, refining and transportation capacity required for a sustained recovery.
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The inventory warning comes even as crude exports from Middle Eastern producers outside Iran recover toward levels seen before the conflict.
Kpler estimates that at least 16.5 million barrels per day of crude left the region during September, broadly matching the prewar average excluding Iran.
That represented a major recovery from March, when the initial disruption to Hormuz caused regional export volumes to collapse.
However, the restoration of volume has required major changes to the way crude moves out of the Gulf.
Kpler estimates that approximately 40% of Middle East Gulf crude exports now leave the region without transiting the Strait of Hormuz.
Before the conflict, only about 17% bypassed the waterway.
Saudi Arabia and the United Arab Emirates have increased use of pipeline systems and export terminals outside the strait, including Saudi Arabia's East-West Pipeline to the Red Sea and the UAE's route to Fujairah on the Gulf of Oman.
Of the crude that continues to transit Hormuz, a large portion is being moved through more complex logistics involving shuttle tankers and ship-to-ship transfers.
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The return of export volumes to near-prewar levels does not mean the oil market has returned to normal.
Tankers continue to face elevated freight costs, higher insurance premiums and security risks. Some vessels cross Hormuz with tracking systems disabled before transferring cargo to other tankers outside the Gulf.
That makes each barrel more difficult and more expensive to deliver even when overall export volumes appear relatively healthy.
The distinction between available oil and deliverable oil has become a central issue for global supply security.
Aramco is responding to those vulnerabilities by increasing the resilience of its own supply network.
Nasser said the company is pursuing additional overseas crude storage and export options while continuing to rely on its existing network of alternative routes, tanker capacity and spare production capability.
The company has used its East-West Pipeline to move crude from eastern Saudi Arabia to the Red Sea, allowing some exports to avoid the Strait of Hormuz entirely.
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The inventory problem adds another layer to the global energy outlook.
Even if Middle Eastern crude flows continue to recover, depleted commercial and strategic stocks leave the system with less capacity to absorb another unexpected disruption.
Rebuilding that buffer while simultaneously meeting normal global consumption could maintain pressure on oil markets long after the most acute supply shock has passed.
The speed of the inventory recovery will depend heavily on whether the Strait of Hormuz continues reopening, how quickly Middle East refining and export infrastructure returns to normal operation, and whether producers can supply enough additional barrels to rebuild stocks without creating new shortages elsewhere.
For now, improving Gulf crude exports provide some relief, but Aramco's warning indicates that the global oil system may remain unusually vulnerable for years rather than months.
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Sources: Saudi Aramco; Kpler; Reuters.
