Aramco CEO: Two years needed to rebuild oil stocks after Hormuz reopening

On Monday, oil prices edged lower, indicating that traders are focusing more on the recovery of Hormuz shipping and output close to pre-conflict levels than on Nasser's caution about stock levels. This market activity might be underestimating the danger: given the extremely low usable inventories, any further disruption would hit a market lacking any significant cushion, increasing the likelihood of sudden, large price increases. The scenario of sustained tightness also runs counter to futures curves that anticipate a normalization in the coming year. Refined products appear to be the more critical issue, with fuel prices rising faster than crude, damage to regional refining capacity, and a halt in Chinese fuel exports, which supports diesel and gasoline cracks.

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Earlier:

• Technical view on crude oil: Middle East tensions drive futures up - what's next from a technical perspective?

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Crude is once again moving through the Strait, but according to Aramco's CEO, global reserves have been exhausted and will require an additional two years of extra effort to replenish.

Summary:

• Amin Nasser, CEO of Aramco, stated that replenishing global oil inventories might require as long as two years after the Strait of Hormuz is completely reopened.
• He stated that less than 10% of global oil inventories are actually accessible, describing the stockpiles as "scarily thin".
• Approximately 3 billion barrels of supply have been absent since the start of the Iran conflict, and over 1 billion barrels have been taken from storage.
• To rebuild stockpiles, Nasser estimates an additional 2 million barrels per day is needed over 18 months.
• While output is close to prewar levels, refinery damage in the Middle East is causing fuel prices to increase more quickly than crude.
• Aramco states it can produce 12 million barrels daily and is developing alternative export routes, storage facilities, and ship-to-ship transfer capabilities.

Amin Nasser, head of Saudi Aramco, cautioned that restoring global oil reserves to adequate levels could take as long as two years, even once the Strait of Hormuz is fully operational and market confidence is restored.

Addressing the Energy Intelligence Forum in London on Monday, Nasser characterized global inventories as "scarily thin" and noted that less than 10% of the world's oil stocks are practically usable at present. He stated that out of approximately 10 billion barrels in global storage at the start of the crisis, fewer than 6 billion remain as commercial inventory, with the majority not feasible to release.

The extent of the depletion highlights the market's dependence on stored oil to manage through the crisis. According to Nasser, about 3 billion barrels of supply have been missing since the conflict in Iran started, and over 1 billion barrels have been withdrawn from inventories, primarily from land-based commercial facilities. He described these releases as the final significant mechanism the market had at its disposal. To replenish reserves while satisfying current demand, he estimated an extra 2 million barrels per day of output would be necessary for the next 18 months.

This cautionary statement arrives as oil output nears prewar levels and Hormuz shipping conditions improve, aided by reduced Iranian military strength and increased US naval presence. Nasser noted that harm to refining facilities in the Middle East still restricts the conversion of crude into fuel, and that refined product prices have increased faster than crude oil. He cautioned that stress on both the crude and product sides would increase until the Strait is completely open. Additionally, Chinese refineries have halted fuel exports to safeguard their own domestic availability.

Aramco asserts it can produce 12 million barrels daily if needed, and is working on extra export pathways, foreign storage, and ship-to-ship transfer capabilities to lessen dependence on any one route. Nasser urged stronger collaboration between producers and consumers for contingency planning, stating that oil continues to be essential for energy security.

His remarks imply that even a complete reopening of Hormuz might not rapidly relieve market tightness, as drained inventories provide minimal safety margin against any additional disturbances in the near term.