The world has nearly spent its oil cushion, and Malaysia is still exposed to a price shock

KUALA LUMPUR: The world has nearly exhausted the oil inventories it has long relied on to absorb supply disruptions, according to industry chief executives speaking at the Energy Intelligence Forum in London this week.

Saudi Aramco chief executive Amin Nasser said fewer than six billion barrels of commercial inventories remained worldwide and that the vast majority was not practically available, leaving the system already straining.

More than one billion barrels have been drawn from commercial stockpiles since the Middle East crisis began this year. Only about 10 per cent of what remains is readily accessible once operational constraints such as tank bottoms and pipeline volumes, and regulatory minimum requirements, are taken into account.

Vitol chief executive Russell Hardy said the market was now dependent on seaborne oil exports escaping the Middle East to keep things in balance through the winter, because there were no more inventories to drain in the West.

Chevron chief executive Mike Wirth said the loss of those buffers had made the market less stable.

Stocks in the United States Strategic Petroleum Reserve are at their lowest level since October 1982, while the International Energy Agency is preparing a release of 100 million barrels.

With global demand running at about 102 million barrels a day, executives said rebuilding reserves while meeting that demand could take as long as two years.

Brent crude traded above US$100 a barrel, at about US$101 on October 7.

The warning on gas

Petronas chief executive Tengku Muhammad Taufik, speaking at the same forum on October 7, warned that rising liquefied natural gas prices risked destroying demand.

The market, he said, was going to be a very tight one this winter.

Asian buyers are paying about US$25 to US$28 per million BTU, a level that has held so far. But if prices reach US$40 to US$50, he said, users may begin switching to less sustainable and less responsible sources of energy.

Asia is more exposed, he said, because its storage capacity is only 38 billion cubic metres against Europe's 150 billion cubic metres, while some Asian countries had previously sourced between 60 and 70 per cent of their liquefied natural gas imports from the Middle East.

Tengku Muhammad Taufik expressed doubt about Asia's resilience beyond 2027, given that its reserves and storage capacity do not match those of countries that have prepared strategically, such as Japan and China.

Where Malaysia stands

Malaysia's status as an oil-producing nation does not shield it from a global shock.

Petronas said in April that close to 40 per cent of the country's crude imports depended on the Strait of Hormuz, even as domestic supply was then at adequate levels.

Malaysia also still needs petroleum products from external markets because domestic demand for some products exceeds local output.

Disruption to shipping routes, higher insurance premiums, tanker costs and refining constraints can raise costs even when some crude is produced at home.

High global prices can lift the value of some petroleum-related revenue while at the same time adding to the cost of subsidies for fuels priced under the Automatic Pricing Mechanism.

For businesses, the cost of diesel, transport, logistics, aviation, raw materials and electricity can squeeze margins and eventually feed into consumer prices.

When stockpiles are ample, governments and companies can release oil to ease a temporary shortage. With reserves thinning, the room to absorb the next disruption is smaller.