The International Monetary Fund has warned that global oil inventories are expected to sink to a five-year low next month as the Iran war affects energy supplies.
With the Strait of Hormuz, the vital chokepoint through which one fifth of the world's oil supply passes, closed for nearly 100 days, global energy supply has been significantly constrained. Total losses since the war's outbreak on February 28 have totalled 12.8 million barrels a day, according to the International Energy Agency.
IMF spokeswoman Julie Kozack said the fund expects global inventories to fall from their pre-war high of 8 billion barrels to about 7.5 billion barrels by July, which would be a five-year low.
“We also are seeing that the oil price is kind of having ripple effects on oil products, and the reserves of oil products, such as jet fuels and refined products, petrochemicals. Those … reserves are also reaching low levels,” Ms Kozack told reporters.
In March, the 32 member states that make up the IEA said they will be making available 400 million barrels of oil from their emergency reserves.
Supply in the US strategic petroleum reserve is nearing its lowest level in four decades after Washington pledged to release 172 million barrels as part of the IEA's efforts to ease energy prices caused by the energy shock. Data from the Energy Information Administration showed US reserves fell to about 357 million barrels the week ending May 29.
Oil prices have fluctuated wildly since the outbreak of the war, although they remain about 35 per cent higher than the pre-conflict level.
They retreated on Thursday as US President Donald Trump suggested negotiations to end the war with Tehran have progressed, although Iranian Foreign Minister Abbas Araghchi rejected the idea that tangible progress was made.
Brent crude was trading 2.56 per cent lower at $95.31 a barrel, while West Texas Intermediate, the US gauge for crude, was trading 2.9 per cent lower at $93.24 a barrel.
An analysis from Oxford Economics on Tuesday said that if the waterway closed throughout July, the price of oil would increase at a point that would be challenging to tolerate.
Ms Kozack said oil prices today are about 3 per cent higher than levels it used in its “reference forecast” for the global economy in April, under which global growth would increase at a 3.1 per cent pace this year. That forecast referred to a quick end to the war, with the average price a barrel trading at $82.22 this year while falling to $76 next year. The fund has previously warned the global economy is heading towards a more “adverse scenario” in which growth falls to 2.5 per cent this year.
“Right now, what we see in the futures curve is that the spot price, the near-term price, is higher than the futures price, so that tells you a little bit of sense of what the market is thinking,” Ms Kozack said.
The fund will release its next global forecast in July.
A report from the Federal Reserve Bank of Boston on Thursday found that the US is still affected by oil shocks, but its rising domestic oil production means the country is less vulnerable to recessions than the oil crises of the 1970s.
Researchers estimated the oil shock related to the Iran war, equating to a 33 per cent price rise, would increase inflation by 1.5 percentage points next year, down from 2.2 percentage points before the mid-1970s.
Meanwhile, Fitch lowered its forecast for the global economy by 0.2 percentage points to 2.4 per cent this year owing the oil crisis, with AI-related tech investments cushioning some of the impact on the global economy. Fitch Ratings said it has revised its average forecast for Brent crude from $70 a barrel to $87.
“The oil price shock is hitting world growth prospects and increasing downside risks. But we are also amid a very pronounced boom in global spending on IT and that is cushioning the impact on activity in the near term, particularly in Asia,” Fitch chief economist Brian Coulton said in a statement.
