Global oil inventories at five-year low, Saudi Aramco warns of risks if Middle East conflict continues

Oil prices have become volatile due to the conflict. (Image credit: Reuters)

• Global oil inventories are at their lowest in five years
• Saudi Aramco warns of limited buffer amid rising Mideast tensions
• Low inventories mean even small disruptions can spike oil prices

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Global oil markets may be entering a fragile phase. Saudi Aramco, the world’s largest oil exporter, has warned that global crude inventories have fallen to their lowest level in about five years at a time when tensions in the Middle East are rising.

Speaking at an industry gathering, Aramco chief executive Amin Nasser said the drop in inventories means the oil market currently has very little buffer if the conflict in the region worsens. He cautioned that the longer the war continues, the more serious the consequences could become for global energy supply.

Oil markets usually rely on large inventories as a safety net. When supply is disrupted by geopolitical tensions, natural disasters or production problems, these stockpiles help stabilise prices. But when inventories fall to unusually low levels, even relatively small disruptions can send prices sharply higher.

That is the concern Aramco is highlighting now.

The Middle East remains one of the most important oil producing regions in the world. Saudi Arabia alone produces around 10 million barrels of oil a day and exports much of it to countries across Asia, Europe and North America.

A large portion of global oil shipments also pass through the Strait of Hormuz, a narrow shipping route between the Persian Gulf and the Arabian Sea. According to the US Energy Information Administration, roughly one fifth of the world’s oil trade moves through this corridor. Any disruption in the region can therefore have a rapid impact on global supply.

Nasser said the situation becomes more worrying when the market is already tight. If inventories are low and a supply shock occurs at the same time, the oil market has very little room to absorb the disruption.

Energy analysts say the market has been tightening gradually over the past year as demand has remained strong while supply growth in some regions has slowed. Geopolitical tensions have now added another layer of uncertainty.

Oil prices have already shown signs of volatility as traders react to developments in the conflict. Markets tend to move quickly whenever there are concerns about disruptions to production or shipping routes in the Gulf.

For large importing countries such as India, developments in the global oil market are closely watched. Since India imports most of the crude oil it consumes, any sharp rise in global prices can eventually feed into fuel prices, inflation and the broader economy.