The scale of the inventory drawdown, with OECD stocks at their lowest since December 1990, sets up a slow-motion tug of war between market fundamentals and geopolitics: cheaper oil and recovering Hormuz traffic are creating the conditions for restocking, but the mechanics of actually rebuilding strategic and commercial reserves will take far longer than the 60-day window set by the current US-Iran memorandum of understanding. With Macquarie and Citigroup both flagging the possibility of Brent falling toward $60, the near-term price outlook looks skewed lower even as the longer-term rebuilding of buffers, and the negotiating leverage tied to it, remains a multi-year proposition. China's reluctance to hurry its own restocking adds a further variable, since a major buyer sitting on the sidelines could keep global supply looking more comfortable than headline drawdown figures suggest, at least until strategic reserve managers in the West start buying in scale from the fourth quarter.
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OECD oil inventories fell to their lowest since 1990 even as prices and Hormuz traffic recover, with restocking set to take months or years, a slow rebuild that could ultimately blunt Iran's negotiating leverage over the strait.
Summary:
- OECD oil inventories fell by 163 million barrels from March to May to their lowest level since December 1990, even as prices and Hormuz tanker traffic have recovered
- Vice President JD Vance linked the pace of global restocking directly to negotiating leverage with Iran, saying the US-Iran memorandum of understanding was designed to let the world "refill some stocks" before assessing Tehran's position
- Analysts at Macquarie and Citigroup both forecast oil could fall to $60 a barrel in coming months, partly because strategic reserve managers are not expected to start buying again until later this year
- The US Strategic Petroleum Reserve hit its lowest level since 1983 in the week ended June 26, with full replenishment to prewar levels estimated to take 15 to 18 months
- China drew down its own reserves to cushion the Gulf supply shock but has shown no urgency to refill, importing roughly four million fewer barrels a day by sea in June than its 2025 average
- Tanker traffic out of the Strait of Hormuz has settled into a new normal of 30 to 60 vessels a day, with crude exports accelerating to about 40% of prewar levels by early July
A sudden glut of oil threatens to weaken Iran's negotiating position even as the country retains leverage over global energy markets through the Strait of Hormuz, according to the Wall Street Journal (gated). While oil prices have fallen back to prewar levels and tanker traffic through the strait is recovering quickly, refilling the world's depleted oil stocks is set to take far longer, undercutting some of the urgency behind US efforts to press Tehran on outstanding issues.
Inventories among OECD member states fell by 163 million barrels between March and May to their lowest level since December 1990. Vice President JD Vance connected the dots explicitly last week, saying the US signed a memorandum of understanding with Iran to allow the world to refill stocks before reassessing Tehran's negotiating position. But rebuilding global reserves is likely to take months if not years, well beyond the 60-day window set out in the memorandum to resolve thornier issues such as Iran's nuclear program. Two factors are helping: falling prices and an unexpected supply glut. Natasha Kaneva of JPMorgan said the surge in supply is colliding with a market that currently has little need for it, with Macquarie and Citigroup both forecasting Brent could fall toward $60 in coming months. Kaneva said OECD nations are projected to begin refilling reserves in the fourth quarter, with the US not starting its own replenishment until 2027.
Tanker traffic out of Hormuz has settled into a new normal of roughly 30 to 60 vessels a day, with Vortexa estimating June exports averaged 4.7 million barrels a day, up sharply from two million in May and accelerating further in early July to about 40% of prewar levels. OPEC+ added to the supply picture on Sunday with a fifth consecutive monthly output increase, while the UAE, Kuwait and Saudi Arabia have all moved at different speeds to restore exports via bypass routes and ships now streaming out of the Gulf.
Actually rebuilding stockpiles looks set to lag the recovery in flows. The US Strategic Petroleum Reserve hit its lowest level since 1983 in the week ended June 26, with Capital Economics estimating a full return to prewar levels would take 15 to 18 months even at an optimistic buying rate, given Washington took until mid-2023 to begin refilling after the 2022 Ukraine-driven shock. China, meanwhile, drew down an estimated one billion to 1.4 billion barrels from its own reserves but has shown no urgency to refill, importing roughly four million fewer barrels a day by sea in June than its 2025 average. Not everyone is convinced the current calm holds: Neil Crosby of Sparta Commodities said the market is pricing in an end to hostilities that he and many others doubt is real or lasting.
