Oil under pressure: The numbers behind the warnings and reassurances

Saturday, 25 April 2026

At the onset of the conflict, 390 oil tankers were effectively trapped behind the Strait of Hormuz. A net 49 vessels have exited since then. In this picture, the sun rises behind tankers anchored in the Strait of Hormuz off the coast of Qeshm Island, Iran on Saturday, April 18.

ANALYSIS: One of the world’s largest oil producing regions is in open-ended turmoil. Yet Kiwis might be forgiven for thinking it was time to relax a little.

Fatih Birol, the executive director of the Paris-based International Energy Agency (IEA), has warned the threat to energy systems is “bigger than the twin shocks of the 1970s and the 2022 energy crisis combined”.

Finance Minister Nicola Willis has described events as currently tracking a little better even than the least pessimistic of three scenarios sketched out by the Treasury.

So how to reconcile the dire warnings, with the reassurances?

While developments in the Middle East change day by day, the most-quoted benchmark price of oil — the futures price for Brent crude — has steadied somewhat, bouncing around US$100.

Treasury’s scenarios would see annual inflation spike to 3.9% in the June quarter, but then fall to 1.5% a year later.

It would also see economic growth continue, at the annual rate of 2% in the year to June, accelerating to 3.4% the following year, with unemployment gradually declining from its current level of 5.4%.

There have also been some positive signs at the pump, with the average price of petrol and diesel down about 6% and 12%, respectively, on Friday from their post-conflict highs, to $3.30 a litre in case of petrol and $3.44 a litre for diesel.

IEA executive director Fatih Birol hasn’t stopped sounding the alarm bells.

The latest words on fuel supply appear to continue to be reassuring, with Willis saying petrol importers were reporting no challenges placing orders as far ahead as June.

While global oil supply dropped by 10 million barrels a day in March as a result of the near total closure of the Strait of Hormuz, global oil inventories stood at 8.2 billion barrels before the conflict began.

That’s enough — on paper — to plug the drop in supply for more than two years, even if the reality may be more complicated.

Oil supply has fallen by about 9%

The often quoted rule of thumb is that about 20% of the world’s oil exports go through the Strait of Hormuz.

But the drop in oil supply since the Middle East conflict on February 28 has been only about half that.

The IEA reported last week that global oil supply fell from 107 million barrels a day (mb/d) in February to 97 mb/d in March.

IEA senior oil analyst Rebecca Schultz says “that’s the largest disruption that we have in history”.

Some oil is still exiting the Gulf

Part of the explanation is that some oil was still flowing through the strait.

But the bulk of the oil leaving the region since the conflict has been exported by other means.

The volume of oil transported via pipelines skirting the conflict zone — such as Saudi Arabian pipelines to the Red Sea and the south coast of the United Arab Emirates — jumped in March by 3.2 million barrels a day.

Willis said in a briefing based on the IEA’s figures on Thursday that oil flows from the Gulf had fallen from 24 million barrels a day to 10 million barrels a day.

“It’s not an insignificant amount of crude oil that is still getting out of the Middle East.”

Production elsewhere has increased

At the same time, some other oil-producing nations including the United States, Kazakhstan, Brazil and Canada have stepped up production to plug some of the gap.

But that still netted out to an overall reduction in global oil supply of 10mb/d.

Willis said on Thursday that ship-tracking data indicated the volume of crude being transported to refineries in Singapore and South Korea, from which New Zealand gets much of its fuel, was so far little changed from last year.

“They are finding it elsewhere; where they haven't been able to get it out of the Middle East they are getting it out of Brazil, they’re getting it out of Africa.”

Stocks have been drawn down to cope

The IEA has reported oil stocks outside of the Gulf region were drawn down by a whopping 205 million barrels in March, equivalent to 6.6 mb/d, compensating for about two-thirds of the drop in production.

China, incidentally, still managed to add 40 million barrels of crude to its tanks in March, during the current crisis.

There is a lot of fuel in storage

Finance Minister Nicola Willis said on Thursday that increasing amounts of oil had been getting out of the Middle East.

There is a surprising amount of oil and refined fuel swilling around in storage tanks or on ships.

The IEA estimated inventories in March stood at a pretty healthy 8.2 billion barrels just before the conflict began.

For context that is the highest inventories had been since February 2021 (levels have ranged between 7.6 billion and 8.7 billion barrels over the past six years).

Those 8.2 billion barrels equate to a seemingly reassuring 84 days’ worth of total current global demand and, in theory, enough to compensate for the drop in supply from the Gulf for more than two years.

But that’s not enough to relax, it seems

In practice it is not possible to run oil inventories down to anywhere close to zero.

1.8 billion barrels are oil and fuel reserves that the IEA requires its members keep under its so-called “ticketing” scheme, which requires they store or buy options for oil or fuel equivalent to 90 days of their net imports.

400 million barrels of those are gradually being released to smooth out the impact of the drop in oil supply.

But the IEA’s figures also include about 2 billion barrels of oil and fuel that are being transported around the world to refineries and end customers in supertankers that move at bicycle-speed.

Some of the remainder of the inventories are stocks that are trapped in the Gulf and 1.2 billion barrels are held in China, so obviously not accessible to the rest of the world.

An IEA spokesperson told The Post on Friday that “a minimum level of stock on land is required to operate refineries, terminals and logistical networks and the continued flow of oil from producing to consuming regions is assured by volumes of oil on water”.

Aggregate inventory levels also “do not tell the whole story”, he said.

“The location and accessibility of the stocks, the split between crude and different products, their quality and specifications, and willingness to use stocks are important considerations.”

Its bottom line on oil stocks appears to be its warning that it would be “untenable” to continue to draw down stocks by 6mb/day until the end of the year.

The upshot is prices have spiked

There is no single price of oil as it varies in composition and, even then, the price it commands depends on where and when customers want it delivered.

The price usually quoted by the media, including The Post, is the cost of entering into a futures contract to secure Brent crude oil for delivery in a couple of months.

On Friday, the price nudged up to US$106 a barrel for June delivery.

But the IEA notes the spot price of Brent is considerably higher, trading about US$60 a barrel above its pre-conflict level at about $130 a barrel around the start of the month.

Petrol prices have retreated from their highs, but could remain elevated above its pre-conflict level for many months if not years.

Demand has fallen

The IEA estimates global oil demand fell by 800,000 barrels a day in March, from a year earlier, and will drop by 2.3 million barrels a day this month as some fuel buyers, particularly in poorer South-East Asian nations, are priced out of the market.

The loss of Middle East jet fuel exports has “thrown a proverbial wrench into the inner workings of the aviation fuel markets”, it says.

Other knock-on effects may be starting to show.

Polymer (plastics) inventories have been “stretched thin” in some markets, threatening difficulties for the manufacturing, textiles, construction and packaging industries, it warns.

And uncertainty remains

And not just in the Gulf.

The IEA is forecasting global supply will fall a further 2.9 mb/d to just over 94 mb/d in April, before starting to recover from mid-year.

But there remains a risk of attacks on the infrastructure that is currently allowing a lot of Gulf oil to bypass the Strait of Hormuz, should fighting resume in earnest.

The IEA also notes “downside risk to its forecast” if Ukrainian attacks on Russia Baltic and Black Sea ports escalate and further reduce exports from Russia and Kazakhstan.

The bottom line

Healthy oil stocks and the re-routing of crude supplies appear to make it unlikely New Zealand will suddenly be unable to find fuel in the immediate future.

But Birol’s warning can’t be ignored. Fuel buyers could be in for many months, if not a few years, of elevated prices as oil stocks are run down and then, most likely, built back up post-conflict — depending how events play out in the Middle East.

Schultz estimates about 80% of Gulf oil production would be able to start flowing again four to six weeks after normality returned to the Strait of Hormuz.

But she warns of “a bit of a long tail” for some of the remainder to come back online.

“It might be that some of the production, at the end of the day, doesn’t necessarily fully come back.”

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