OPINION: World oil: Where do we go from here?
Until global producers deliver consistent supply above demand for months on end, the current price volatility is not likely to vanish.
Robb Moss about 12 hours ago
One thing I’ve learned from social media is that somewhere between misinformation and disinformation might sit a kernel of truth. The perfect example right now? The “wonderful world of oil and gas” amid the Iran conflict.
Here’s some entertainment value: watch the daily market price ticker for WTI and Brent crude. An “imminent deal” to reopen the Strait of Hormuz — oil prices drop. Iran announces it has no intention of giving up its nuclear program or partially enriched uranium — prices shoot back up. Rinse, repeat.
For all practical purposes, none of this information is reliable. The real story is simpler, and the data from the International Energy Agency and U.S. Energy Information Administration tells a different story.
Here’s what we know about global oil supply three months into the war that effectively shut the Strait of Hormuz and cut off roughly 20 per cent of seaborne crude and LNG flows.
Global demand is down, not up. Pre-war forecasts from the IEA called for modest growth in 2026. Now? The agency’s May Oil Market Report projects world oil demand contracting by 420,000 barrels per day year-over-year to 104 million b/d — 1.3 million b/d below pre-conflict expectations. The second quarter alone is down 2.45 million b/d.
Petrochemical feedstocks and aviation took the first hits; higher prices and weaker economies are spreading the pain. EIA’s latest Short-Term Energy Outlook is only slightly less pessimistic: demand growth slashed to just 200,000 b/d for the year.
And summer driving season in North America? Yes, it’s happening, but overall demand is still running below pre-war levels because the war effectively destroyed consumption in other parts of the world.
Strategic inventories — the real buffer to price volatility — have been quickly depleted. “Global oil reserves” in the headline sense (proven underground resources) haven’t changed much; those are still measured in trillions of barrels.
What matters for prices today are the above-ground storage stocks and strategic reserves. Pre-war, global observed inventories were at multi-year highs — over 8.2 billion barrels as recently as January. Since the Strait of Hormuz closed in late February, the drawdown has been historic.
IEA data show 246 million barrels pulled from stocks in March and April alone (roughly 4 million b/d). Morgan Stanley pegged the early-war draw even higher at 4.8 million b/d.
The U.S. Strategic Petroleum Reserve (SPR) tells the same story: it sat at about 411 million barrels at the end of 2025. As of mid-May 2026, it’s down to 374 million barrels after accelerated releases. For context, the US SPR has a full capacity of 714 million barrels.
Production is the real constraint. Current global supply is running well below demand. IEA figures show output fell another 1.8 million b/d in April to just 95.1 million b/d, with cumulative losses since February topping 12.8 million b/d — almost entirely from Gulf producers whose exports were choked off.
Non-OPEC+ producers (U.S., Brazil, Canada) have stepped up, but not enough to offset the deficit.
To adequately meet demand and start rebuilding reserves, we need meaningful extra production. Right now, the market is in deficit, drawing down inventories at a rapid pace. EIA projects an average 8.5 million b/d draw in the second quarter.
To match the current suppressed demand (already ~2.4 million b/d below pre-war run-rate in Q2) while beginning to refill stocks at a “manageable” pace — say, 2 million b/d surplus to rebuild hundreds of millions of barrels over 6–12 months — we’d need roughly 4–5 million b/d of additional net supply above current levels once the Strait of Hormuz reopens and shut-in Gulf production ramps back.
So, is there enough spare capacity? The short answer appears to be no, and not without time. Pre-war spare capacity looked comfortable. The war gutted it — effective OPEC+ spare is now marginal, the lowest on record.
Once shipping resumes (assuming the fragile talks deliver), Atlantic Basin growth plus gradual Gulf recovery should begin to move us in the right direction. But IEA and EIA both warn that full normalization of production and trade patterns could stretch into early 2027.
For investors, the usual market signals are even less reliable than usual. Watching the spot price and futures curve might not be a dependable predictor of company valuations, volatility notwithstanding. A better indicator could be whether the SPR begins to fill.
When the U.S. government starts buying barrels again instead of selling, that physical restocking might be a more reliable signal of where prices are really headed than any headline or social-media post.
Of course, there is much ado about summer gas prices and the U.S. mid-terms. Kind of a classic catch-22! Politicians want cheap gasoline at the pump and a handle on inflation to keep voters happy heading into November, yet the SPR is already badly depleted. Releasing more barrels to cap prices would only make the eventual rebuild of oil inventories harder and more expensive.
The propaganda war loves drama. The physical oil market doesn’t. It runs on barrels in tanks, not wishful thinking. Until global producers deliver consistent supply above demand for months on end — and until we see the US SPR filling instead of emptying — the current price volatility is not likely to vanish. Moreover, the next oil shock will hit harder because the cushion is gone.
Energy security isn’t defined by social-media posts. It’s inventory levels and production calculus. Maybe time to keep our eye on the ball.
Robb Moss is a retired oil and gas analyst and CFA residing in Foothills County, Alberta.
