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Middle East Disruptions, Falling Inventories Raise Global Oil Supply Risks, Kpler Says

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Crude markets for spot delivery are rapidly shifting from oversupply to potential physical shortages as Middle East supply disruptions, shrinking inventories, and mounting delivery risks tighten the global oil market, according to a Kpler note on Wednesday.

The market moved from concerns about prompt oversupply to fears of supply shortages after the US-Iran memorandum of understanding collapsed and security risks returned to the Red Sea, Kpler said.

Oil flows through the Strait of Hormuz dropped to about 3 million barrels per day last week and have remained almost negligible this week, compared with over 8 million b/d in early July, the report said.

Ship-to-ship transfers near Fujairah and Sohar continued, but lower volumes and growing risks to tankers reduced non-Iranian Middle Eastern crude stored in the Gulf of Oman to a two-month low of 21.4 million barrels.

Kpler said delayed cargo deliveries are becoming a growing concern.

It cited a vessel carrying Basrah crude for China's Chambroad Petrochemicals, which remained inside the Persian Gulf despite a scheduled July 25 arrival in China.

Adnoc awarded only about 8 million barrels of August-September Abu Dhabi crude in its sixth-round tender to refiners in South Korea, Taiwan and potentially Japan, sharply below the roughly 20 million barrels awarded per tender in June.

Kpler also highlighted renewed Houthi threats against Saudi-linked tankers in the Red Sea, increasing risks for Saudi Arabia's alternative export route that bypasses the Strait of Hormuz.

Asian refiners bought more Saudi crude after lower official selling prices and higher output made Middle Eastern grades more attractive. At the same time, they cut September purchases of West of Suez cargoes.

At least four tankers carrying Saudi crude or sailing toward Yanbu turned around to avoid the Bab el-Mandeb Strait.

Saudi Aramco is also evaluating a longer export route through the Suez Canal, Sumed pipeline, Sidi Kerir and the Cape of Good Hope.

Kpler said the proposed routing would increase freight costs and voyage times, reducing the competitiveness of Saudi crude in Asia unless Saudi Aramco cuts its selling prices.

The report expects the greatest challenge for Asian refiners to emerge in late August and September if Hormuz disruptions and Red Sea threats continue for another one to two weeks. Lower West of Suez purchases could leave refiners short of feedstock.

Refiners could respond by drawing down inventories or reducing refinery run rates until fresh West of Suez cargoes begin arriving in October and Middle Eastern exports recover.

South Korea, Thailand, Malaysia and Indonesia rebuilt crude inventories through higher purchases and delayed Persian Gulf cargoes. However, lower US Strategic Petroleum Reserve and commercial stocks reduce Washington's capacity for another large stock release.

Weak fuel demand, clean product export restrictions and poor refining margins kept China from increasing crude purchases. However, falling inventories could push refiners back into the market.

At the current drawdown pace of about 750,000 b/d, China's onshore crude inventories would return to March 2025 levels in roughly 200 days. Kpler said Beijing's minimum energy security threshold remains uncertain.

Kpler analysts expect Middle Eastern crude supply disruptions to last through the end of 2026 and possibly into Q1 2027. It said oil prices could surpass March's peak if China resumes buying before regional flows recover.

The oil market continues to react to geopolitical headlines, but shrinking supply buffers and rising delivery risks are narrowing the window to avoid physical crude shortages.

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