"Global Crude Oil Inventories to Deplete Rapidly from June... Gasoline and Aviation Fuel to Be Hit Hardest"

Bank of Korea Reviews Global Crude Oil Inventory Status After Middle East Conflict

There are projections that global crude oil inventories, which have been buffering upward pressure on international oil prices, will be rapidly depleted starting next month. Analysts warn that if the war in the Middle East continues for an extended period, supply-side risks could materialize, leading to greater negative impacts on the global economy, particularly on emerging markets.

The Bank of Korea stated this in its "May Economic Outlook Report" released on the 28th, after reviewing the status of global crude oil inventories following the outbreak of the Middle East war.

The Bank of Korea assessed that, contrary to initial concerns, the reason international oil prices have remained at relatively stable levels is because ample oil inventories have partially absorbed the shock. Currently, international oil prices are around USD 100 per barrel, which is lower than the peak of USD 128 reached during the Russia-Ukraine war in 2022 and is also well below the USD 150 anticipated by the market at the onset of the current conflict.

The Bank of Korea explained, "Due to the production increase policy adopted by OPEC+ (the Organization of the Petroleum Exporting Countries and allied non-member producers) since April of last year, the market continued to be in a supply-surplus situation. As a result, just before the war, global crude oil inventories were near the highest level in five years, and in particular, offshore oil inventories reached an all-time high." The report added, "These ample reserves have partially offset the reduced oil supply in the market caused by the Middle East war, which was a key reason why the market did not immediately feel the impact of the Strait of Hormuz blockade."

However, the Bank of Korea anticipates that this buffering effect will not be sustainable if the blockade of the Strait of Hormuz drags on. Typically, the first half of the year is a period when inventories are stockpiled in preparation for increased summer travel demand, but this year, global oil inventories have been on a downward trend since March. The Bank of Korea projected, "Through May, the depletion of inventories was mitigated by shipments dispatched before the war and the supply of Russian crude oil following the lifting of sanctions. However, from June onward, these effects will diminish, and the pace of inventory drawdown will accelerate further."

The situation is even more serious for petroleum products, whose inventories are lower than those of crude oil. Gasoline and aviation fuel, in particular, are expected to take the biggest hit, given their high dependence on Middle Eastern crude imports and refining facilities. In fact, inventories of gasoline and aviation fuel at sea have already fallen below typical levels as of May, after declining rapidly since the outbreak of the war. The Bank of Korea pointed out, "After June, with reduced arrivals of crude oil and rising summer travel demand, inventories will be depleted even faster, and in some regions, supply disruptions could become much more severe."

The Bank of Korea also warned, "In particular, the negative impact on emerging economies, which are already struggling to secure energy supplies, could reach a critical level. If the Middle East crisis becomes protracted, the increase in oil prices could be significant, amplifying the shock to the global economy."

This content was produced with the assistance of AI translation services.