Oil Monitor, CITI’S TAKE
In this note, we review IEA/OECD strategic oil inventories. Oil product prices have rallied sharply and are now only 10-15% below end-Mar’26 highs, following the collapse of the Iran/US MoU, and military confrontation over the past 1-2 weeks. Meanwhile, the IEA/OECD release of 400-m bbls of oil and products is almost done, having increased supply and reduced fear in the market, but finishing over the next 1-2 months. By September, should SoH flows or energy infrastructure be or continue to be materially compromised, we would expect another material release. We would expect Europe to contribute through a substantial product release (diesel-led), versus last time where the releases were mainly by the US and Japan. However, this is by no means guaranteed given Europe may choose to preserve its buffer, subsidize prices at the European pump, and through higher energy prices encourage the US to return to negotiations with Iran.
The IEA’s coordinated strategic stock release, totaling 400-m bbl, has provided something of a buffer against disruptions to oil flows through the Strait of Hormuz. Since Mar’26, the IEA member countries have been working through an emergency release of 400-m bbls of crude oil and products. Per the IEA’s Mar’26 statements (IEA 3/11 & 3/19/26), member countries held an apparent total of 1.8-bn bbls of strategic stocks, split into 1.2-bn bbls of government (aka public, or strategic) stocks, of which 280-m bbls would be released, and reported a further 0.6-bn bbls of “industry stocks held under government obligation”, of which 119-m bbls would be released. This latter category was essentially held at commercial storage sites and could not be dipped into, but now has been available. Thus, it alleviated physical market pressure, though also wouldn’t clearly show up in inventories data. Meanwhile, the former category, which we refer to as “government strategic stocks”, has seen a physical draw of ~170-m bbl as of Jul’26, averaging roughly 1.1-m b/d, and peaking above 2.7-m b/d in Apr’26. All in all, the release has materially supplemented global supply during a period of heightened geopolitical risk, limiting the extent to which physical disruptions have translated into outright shortages.
Most of the stock releases have been the US and Japan. The US has already released ~100-m bbl of crude from its government strategic reserves of its 172-m bbl commitment, while Japan has drawn down ~70-m bbls of its pledged ~80-m bbls barrels. By contrast, Europe’s contribution has largely come through the temporary relaxation of mandatory stockholding obligations, and has barely dipped into its ~30-m bbls contribution from strategic reserves. Of the 280-m bbls committed out of 1.2-bn bbls of government strategic inventories, there could be >110-m bbls, mainly the US’s ~72-m bbls remaining. The 119-m bbls contribution of the 600-m bbls of obligated industry/strategic stocks can be considered as released and available.
Obligated industry/strategic stocks may not translate into physical stock draws, but do also help to alleviate market stress. These stockholding obligations—often referred to as compulsory, mandatory, or obligation stocks—are typically held by industry participants to satisfy IEA and EU requirements. Although these barrels are generally stored within commercial infrastructure, they do not form part of companies’ operational working inventories. As a result, the temporary relaxation of stockholding obligations does not automatically translate into physical stock draws. Nevertheless, it increases inventory accessibility and operational flexibility for market participants, thereby easing logistical constraints and reducing potential supply disruptions.
Of the 1.24-bn bbls of government strategic stocks held in Feb’26, these stand at an estimated 1.04-bn bbls as of Jul’26. IEA member countries still have 740-m bbl of crude oil government strategic stocks – with 40% in the US, >20% in Europe, and 35% in Asia – and over 300-m bbl of oil products government strategic stocks, with Europe owning over 80% of it. This is relative to Feb’26, when government strategic crude oil stocks stood at 934-m bbls, and government strategic products stocks stood at 311-m bbls. This total was the basis of the 1.2-bn bbls of strategic stocks, i.e. what we used to refer to the IEA member emergency stockpiles, referred to in the IEA statement in their 03/11/26 press release (IEA 03/11/26). There, the IEA also referred to there being 600-m bbls in industry obligated/strategic stocks held under government obligation, as discussed earlier, though this is harder to track in ongoing official data. Of this, the contribution to the ~400-m bbls of release was said to be 119-m bbls, while government strategic stocks, aka government or public stocks, were earmarked to release 280-m bbls. There was also 28-m bbls of higher production commitments from Canada and Mexico. For the IEA table of contributions by country, see IEA 03/19/26. This total 1.8-bn bbl quoted number, in terms of the early announcement of IEA member commitments, versus the level of OECD government strategic stocks at Feb’26 and the anecdotal 600-m bbls of industry obligated/strategic stocks, are shown below in Figure 3. The drawdowns, broken down between crude and products, and by region and product are shown below in Figures 4-7.
Europe is presented with a dilemma. If they resist releasing stocks they may see an equity and bond correction that increases the likely of President Trump doing a deal with Iran that more sustainably lowers oil prices, while also maintaining a larger than otherwise buffer in the event this shock continues. However, this would also likely attract President Trump’s ire, especially as US SPR crude stocks are getting down to historically low levels. Conversely, if Europe releases inventories they reduce pressure on global oil markets, inflation and equity and bond markets all else equal, possibly reducing pressure on the US to make a deal with Iran.
We believe the IEA is unlikely to release further stocks until September (assuming the SoH is still materially disrupted then), at which point a Japan and Europe-led (largely oil products) release may occur, as product markets are very tight. In the meantime, governments may choose to continue to subsidize energy prices at the pump. Appetite within the US Administration for further strategic stock draws may be limited and a swap would require a wider backwardation after factoring in the premium. Japan appears a more plausible source of incremental barrels should prices rise materially further. The refined products market has tightened amid exceptionally large refinery outages, lower Chinese refinery runs, and export restrictions imposed by several countries.
Oil market outlook update – highly political, but eventually see de-escalation, as the end-game likely the same as before
Our baseline view is that energy rallies be sold into over the summer (i.e. we expect de-escalation ultimately) and metals weakness to be bought (we expect lower Fed rates and higher global growth expectations by the turn of the year). Having said this, our near-term conviction in the oil and metals price outlook is relatively low, reflecting that the outlook is inherently tied to the actions of both President Trump and the Iranian regime.
We interpret recent events as President Trump using military pressure to try to re-negotiate Point 5 of the US–Iran MoU, which was the point that focused on commercial shipping through the Strait of Hormuz (SoH). The US President wants to use the Oman side of the Strait as it sees fit, and Iran doesn’t want that (as they likely want to build tracking/monitoring infrastructure for future fees).
The recent military escalation clearly raises the probability that Iran could suspend engagement with the MoU for weeks or months, potential until after the US midterm elections in Nov’26. While not our central scenario, this would likely support higher-for-longer oil prices and could trigger additional strategic stock releases from IEA/OECD countries. For reference, our base case remains that the ongoing escalation falls short of mutual energy and public infrastructure destruction. Although this is a bullish risk for oil, it is a tail risk in our view.
Having said this, we see the same endgame as before: a diplomatic resolution and normalization of shipping flows, possibly as soon as next month. In our view, the key question is the timing of “MoU 2”, with a return to diplomacy over the coming weeks our base case. The expected (eventual) return to diplomacy base case reflects the fact that President Trump has historically shown a preference for strong equity markets, stable bond markets and lower energy-price volatility, meaning US equity and bond market downside provides a limit for high oil prices. For Iran, a return to negotiations would help avoid further economic disruption, infrastructure damage and domestic pressure, while the SNSC had already approved the original MoU terms.
We estimate that global energy markets would rapidly return to large surplus in the event of an MoU 2 / or deal (either US/Iran deal or ME regional countries / Iran deal), since infrastructure and logistical constraints can be overcome quickly. This would also see lower inflation pressures, and likely lower real interest rates, as well as stronger cyclical global growth expectations and metals prices (hence the buy the dip in gold/copper/aluminium for a Sep-Dec ‘26 rally).
Ample global oil stocks take outright shortages off the table during 2026. A sliver of good news is that we highlight our earlier finding during the 2Q’26 pre-MoU that it might take as long as 9-12 months to see global inventories fall to 1970s levels, with inventories around ~3-bn bbls higher than they were in the 1970s (adjusting for demand).
World oil expenditures are running ~1.5% higher as a share of GDP YTD – we estimate that global oil expenditures are roughly ~3.5% of GDP at present, up from ~2% at the beginning of the year, after seeing highs of ~4% of GDP in March/April. We have little doubt that adding $1.5 trillion to the global cost base is deleterious to global growth prospects overall, considering the inflationary impact and the resulting sticky high interest rates and interest burdens in many OECD economies.
Meanwhile, agriculture price risks remain skewed to the upside over the next 6-12 months, particularly the soft commodities, as they face major supply risks resulting from likely poor weather related to El Niño (with the only question being how bad the weather impact will be for net global food production).
