That is the title of a Wall Street Journal (WSJ) article that tells us that an oil crisis is looming. The thesis of that article is that the world has been cushioning the shock of Middle East supply disruptions by consuming its emergency reserves and stored inventories, and that cushion is rapidly disappearing.

The Article’s Key Points

The market has not fully reflected the severity of supply losses. The closure of the Strait of Hormuz and associated Middle East disruptions removed a massive amount of oil from normal circulation. Yet prices did not immediately explode because governments and companies were drawing from: Strategic petroleum reserves (SPRs), commercial inventories, oil stored on tankers and previously accumulated surplus stocks Those inventories acted as a shock absorber.

Inventories are being depleted at an extraordinary pace. The WSJ article noted that 250 million barrels were withdrawn from inventories during March and April alone. The International Energy Agency and private analysts warned that inventories in many regions could reach critically low levels by summer if disruptions continued.

The problem is not merely crude oil but refined products. The article emphasized that stocks of diesel and other fuels were becoming especially tight. Diesel shortages often have larger economic consequences than crude shortages because trucking, railroads, agriculture, mining, and industrial production all depend heavily on diesel fuel.

Governments have been using emergency reserves. IEA member nations collectively released hundreds of millions of barrels from strategic reserves. The WSJ article stressed that those releases solved a short-term problem while creating a long-term one -- eventually the reserves must be rebuilt.

Replenishing reserves creates future demand. Once the current crisis ends, governments will have to re-enter the market as buyers. This means that a period of inventory rebuilding could add substantial demand even if economic growth slows. The article suggested that today’s reserve drawdowns are effectively borrowing oil from the future.

The article’s broader message The WSJ article was arguing that the world appeared safer than it really was because inventories were masking the shortage. Once those inventories approach minimum operating levels, prices could rise much more sharply because there would be little remaining buffer against additional disruptions.

A Fortune article titled, “Oil Bosses Warn Prices Will Soar in a Matter of Weeks” also illuminated the approaching crisis

The Fortune article focused on warnings from two senior industry executives, Neil Chapman of ExxonMobil and Mike Wirth of Chevron.

Both warned that inventories were approaching operationally dangerous levels.

Neil Chapman’s warning

Chapman stated that many observers did not appreciate how much oil had effectively disappeared from the global system.

His reasoning was:

• Global oil demand is roughly 100 million barrels per day.
• Supply disruptions removed roughly 11–12 million barrels per day.
• The market survived because inventories absorbed the loss.
• Inventories are now nearing “really, really low levels.”

He warned that once stocks are exhausted, prices may rise suddenly because there would be no remaining buffer. Chapman suggested crude prices could potentially spike toward $150–$160 per barrel under a severe shortage scenario.

Mike Wirth’s warning

Wirth’s concern was slightly different. He warned that:

• Oil markets had remained calmer than expected because stockpiles were high when the crisis began.
• Strategic reserve releases provided additional support.
• Those buffers are now largely depleted.

His warning noted that even if geopolitical conditions improve, inventories will still need rebuilding, and rebuilding itself creates demand that can support higher prices. He specifically said the market’s “buffers” are becoming exhausted.

Timing

One of the most notable points in the Fortune article was that neither executive was predicting that the crisis was years away. Both suggested that if inventory draws continue, the market could feel the effects within weeks or months, not years.

The Most Important Takeaway

The WSJ and Fortune articles converge on the same underlying issue: The world’s oil inventory cushion is being consumed.

That matters because inventories perform three functions: they absorb temporary supply disruptions, they stabilize prices and they provide emergency protection against geopolitical shocks.

When inventories become unusually low small supply interruptions can cause large price movements. Governments become more likely to buy oil for reserve replenishment and traders will begin pricing scarcity risk into the futures markets.

In simple terms, both articles argued that current oil prices may understate future risk because inventories, not production, have been doing much of the work in balancing the market. Once those inventories reach minimal levels, the market loses its shock absorber.

What struck many energy analysts about these articles is that the warning did not come from speculative traders. It came from the operating side of the industry, from executives responsible for moving barrels of oil around the world. That is why their comments attracted so much attention.

Another reason those articles stood out is that they highlight something that often gets overlooked in energy discussions: price is determined at the margin. The world doesn’t need to “run out of oil” for prices to rise sharply. If inventories are low and spare capacity is limited, even a relatively small disruption can have an outsized effect on prices.

In an era of growing geopolitical competition, inventories can become almost as important as production itself

Historically, major oil price spikes have often occurred not because global production collapsed, but because the market lost confidence that there was enough reserve supply and inventory to absorb the next shock. That was a factor in the oil crises of the 1970s, the 1990 Gulf War, and the run-up to the 2008 price peak.

The question to watch going forward is not to ask, “How much oil is being produced?” but “How much spare production capacity exists and how much inventory remains available?”

Those are the metrics that Chapman, Wirth, and many energy analysts are focused on.

The articles contain a much more nuanced argument than the simplistic “oil prices are going up because demand is rising” narrative that often appears in headlines. They are really about the shrinking margin of safety in the global energy system.

We must focus on the underlying mechanism. In this case, the mechanism is the distinction between flow and stock:

• Flow is how much oil is being produced each day.
• Stock is how much oil is already stored in reserves and inventories.

Markets can tolerate a mismatch in flow for a while by drawing down stock. But once stock gets low, the market becomes much more sensitive to disruptions. That’s what those executives were warning about.

It will be interesting to see whether this develops into a broader strategic issue. The United States, China, Europe, India, and others have all come to appreciate that energy security isn’t just about producing crude, but it’s also about maintaining adequate reserves. In an era of growing geopolitical competition, inventories can become almost as important as production itself.

And gas cost at the station pump? You ain’t seen nothing yet.

Chet Nagle——Bio and Archives

Chet Nagle is an experienced analyst and commentator on international commerce, geopolitics, national security matters, the Middle East, and strategic communications. He has been on radio, has appeared in documentary films and has been a guest on television news programs. His columns have appeared in the Daily Caller, The Hill, Roll Call, and many other publications. He is a contributing editor for ANDmagazine.com and the European Security & Defense magazine.