Oil Inventory Cushion Shrinks as Persian Gulf Disruption Fears Rise

Oil markets received a warning on July 29 that another Persian Gulf supply disruption was becoming increasingly likely due to a dwindling inventory cushion.

Brent crude prices rose by 7.9% as renewed fighting in the region sparked concerns over further disruptions to exports, while commercial crude stocks fell by 7.2 million barrels to 404.5 million barrels, which is 6% below the five-year seasonal average, according to the US Energy Information Administration (EIA).

The International Energy Agency (IEA) reported that global observed oil stocks rose for the first time in four months in June by 21 million barrels due to higher oil on water volumes offsetting draws in onshore tanks.

However, readily accessible onshore inventories are at an acute level of depletion, and storage operators can draw upon these quickly. In contrast, crude held at sea may take weeks to reach its destination or be bound for a different region entirely, making it unsuitable for refineries.