US crude stockpiles rise 2 million barrels as Red Sea crisis deepens

US crude stockpiles rose 2 million barrels last week against forecasts of a draw, but the build masks a deeper threat: the Houthi blockade is severing the last viable alternative route for Saudi crude.

"The simultaneous disruption of Hormuz and Bab el-Mandeb could push the market's capacity for adaptation to its limits," said Ron Bousso, energy columnist at Reuters. "As fuel shortages deepen and demand contracts, the world's energy crisis risks entering a far more damaging phase."

The EIA data showed commercial inventories at 411.7 million barrels, about 6 percent below the five-year average, while the Department of Energy released 5.1 million barrels from the Strategic Petroleum Reserve, leaving it at 311.4 million barrels — the lowest since March 1983. Overall US inventories, including commercial and SPR stocks, have fallen by 129 million barrels since the Iran war began in late February to 726.2 million barrels, the lowest since 1984. Crude production slipped 63,000 barrels a day to 13.8 million barrels a day, while imports rose 117,000 barrels a day and exports fell 368,000 barrels a day.

The inventory data arrives as the Houthi blockade of the Bab el-Mandeb Strait, declared Monday, threatens to undo the fragile recovery in global oil flows that followed the US-Iran interim ceasefire on June 17. Saudi Arabia had redirected about 5 million barrels a day of exports through its west coast Yanbu hub since March — more than double prewar levels — with roughly four-fifths transiting through Bab el-Mandeb. Avoiding the strait adds at least four weeks to tanker journeys, more than doubling sailing times while sharply increasing freight and insurance costs.

Refining Squeeze Deepens as Fuel Prices Surge

Asian refining output plummeted during the crisis and had only recently begun recovering after the June ceasefire. China's refiners slashed processing rates by 18 percent in June compared with the same month in 2025, pushing output to the lowest since March 2020. Any nascent recovery will now likely stall given the renewed supply disruption and oil prices above $90 a barrel, the highest in over a month.

Since the start of the Iran war, benchmark European diesel prices and US gasoline prices have gained about 65 percent, compared with a 30 percent rise in Brent crude. Diesel refining margins have surged to record levels, highlighting the growing imbalance between crude availability and the supply of refined products. Global oil demand fell nearly 5 percent in the second quarter of 2026 from a year earlier to 99.1 million barrels a day, according to International Energy Agency estimates.

Demand Destruction Spreads as Shock Absorbers Erode

Chinese diesel consumption fell an estimated 10 percent in May from a year earlier, while gasoline demand declined 5 percent and petrochemical feedstock use slumped 17 percent, according to IEA data. In Europe, diesel consumption fell 5.7 percent in May from a year earlier to 4.5 million barrels a day.

The steady depletion of global oil inventories has left the world with far fewer buffers than it had in February. Strategic and commercial reserves helped cushion the abrupt loss of Middle Eastern supplies during the early stages of the conflict, but those buffers have steadily eroded over months of disruption. World Bank chief economist Indermit Gill told Reuters that the conflict could ultimately cut 2026 global growth to as low as 1.3 percent, from 2.9 percent last year.

This article is for informational purposes only and does not constitute investment advice.