Oil Inventories Drain at Record Pace, Squeezing UK Costs

What the IEA numbers actually say

The IEA's May 2026 oil market report, published on 13 May, quantifies the damage from more than ten weeks of conflict between the United States and Iran. The Strait of Hormuz, which normally carries roughly a fifth of the world's seaborne crude, remains effectively closed. A fragile ceasefire has not meaningfully restored tanker traffic, according to the agency.

The headline figure: observed global inventories, including oil on water, were drawn down by 250 million barrels over March and April, equivalent to roughly 4 million barrels per day (b/d). The agency described the situation as "an unprecedented supply shock", as first reported by City AM.

"With Hormuz tanker traffic still restricted, cumulative supply losses from Gulf producers already exceed 1bn barrels with more than 14 mb/d of oil now shut in."

Global oil supply declined by a further 1.8 million b/d in April to 95.1 million b/d, according to the IEA. Total losses since February now stand at 12.8 million b/d. The agency had flagged the disruption as the largest in the history of the oil market in its May 2025 reporting cycle, and the latest data confirms the scale has only grown.

Refinery crude throughputs are expected to plunge by 4.5 million b/d in the second quarter, according to the same report. Overall, the IEA projects global oil demand will fall by 2.4 million b/d year-on-year in Q2, driven by a weaker economic environment and forced demand-saving measures.

Where the pain lands for UK operators

The transmission mechanism from a Gulf supply shock to a UK balance sheet runs through three channels: direct energy costs, petrochemical feedstocks, and freight and aviation fuel.

Energy costs

Brent crude prices have surged since the conflict began in late February. While the IEA report does not set a price forecast, the scale of the inventory drawdown, combined with reduced refinery runs, points to sustained tightness in refined product markets. UK businesses purchasing diesel, heating oil, or natural gas derivatives linked to oil benchmarks face elevated input costs for as long as the disruption persists.

The UK government has released volumes from its strategic reserves in coordination with other IEA member states, though the precise quantities disclosed so far have not fully offset the shortfall. Any further coordinated stock releases would need to be agreed at IEA ministerial level.

Petrochemicals

The IEA singles out the petrochemical sector as bearing the sharpest impact. Feedstock availability is "becoming increasingly constrained", the agency stated. For UK manufacturers dependent on naphtha, ethylene, or propylene derivatives, this means both higher prices and longer lead times. Sectors as varied as packaging, construction materials, automotive components, and pharmaceuticals sit downstream of these feedstocks.

Freight and aviation

Aviation activity is "running well below normal levels", according to the IEA. Jet fuel availability has tightened alongside the broader refinery throughput decline. UK firms with international supply chains face a dual squeeze: higher air cargo rates and reduced flight frequency. Road freight costs are similarly exposed to diesel price movements, compounding the pressure on logistics-heavy businesses.

Non-Gulf supply response: enough to close the gap?

Producers outside the Middle East have responded. The IEA notes that non-Gulf exporters "pushed output higher and lifted exports to record levels" in response to the crisis. Supply growth expectations from the Americas have been revised upward by more than 600,000 b/d since the start of 2026, to 1.5 million b/d on average for the year, according to the agency.

Russia's crude oil exports have also risen. Repeated attacks on Russian refineries, linked to the ongoing war in Ukraine, have cut domestic processing capacity and redirected barrels to export markets. The United States temporarily waived sanctions on Russian oil on water, further easing flows, the IEA reported.

These gains are material but insufficient to close the gap. With more than 14 million b/d shut in from Gulf producers, even a combined Americas and Russia uplift of roughly 2 million b/d leaves a vast deficit. The 4 million b/d inventory drawdown rate reflects this arithmetic directly.

The IEA's framing is cautious. Demand destruction, whether through economic slowdown or deliberate conservation, is doing part of the balancing work. The projected 2.4 million b/d year-on-year demand decline in Q2 is not a sign of market health; it is the consequence of supply being rationed by price and scarcity.

What boards should be doing now

The practical question for UK SME and scale-up boards is not whether this disruption matters, but how long to plan for it lasting. The ceasefire remains fragile, and the IEA's data suggests that even a partial reopening of the Strait would take months to restore inventories to pre-crisis levels.

Three areas warrant immediate attention.

Energy budget stress-testing. Finance directors should model scenarios where current energy costs persist for six to twelve months. Hedging positions, where they exist, should be reviewed for adequacy. Businesses without hedges face the full pass-through of spot market volatility.

Supply chain mapping. Any input with a petrochemical origin, or any logistics route dependent on Gulf-sourced fuel, is a vulnerability. Boards should be identifying alternative suppliers and assessing whether inventory buffers are sufficient to absorb a further tightening in feedstock availability.

Contract review. Fixed-price contracts with customers may need renegotiation if input costs have moved materially since they were agreed. Equally, supplier contracts with energy surcharge clauses should be scrutinised to understand exposure.

The IEA's numbers describe a market under severe strain. Non-Gulf supply is rising, but not fast enough. Demand is falling, but not by choice. For UK operators in manufacturing, logistics, and chemicals, the next two quarters will test margins, cash reserves, and the resilience of supply chains built for a world where the Strait of Hormuz was open.