Global Oil Reserves Are Shrinking Fast

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0:32Commuters in New York face a day of chaos as the strike shutting to Long Island Railroad goes into a third day. Plus, the US and China agree to launch boards of trade and investment. And while fuel is expensive now, brace yourself, because global oil inventories are falling at a record pace. The highest that oil prices have ever reached, at least for the Brent benchmark, was$148 a barrel. This was in 2008. There are some expectations out there that if the Strait of Kermun remains closed for another few months, this level will be tested. It's Monday, May 18th. I'm Daniel Bach for The Wall Street Journal, filling in for Luke Vargas.

1:09And here is the AM edition of What's News, the top headlines and business stories moving your world today. A marathon day of negotiations has failed to end the strike on the Long Island Railroad, setting the stage for a rough start to the week for commuters. Unions and the Metropolitan Transportation Authority, which runs the railroad, negotiated into the early hours of this morning after some prodding from the National Mediation Board and New York Governor Kathy Hochul. The bottom line is no one wins in a strike. Everyone is hurt. The hundreds of thousands of people who rely on the railroad and the thousands of unionized workers who are losing out on wages.

1:49The talks went well enough that both sides agreed this morning to continue. But as the journal's Alyssa Luckpat explains, that won't save Monday morning's commute because of the time needed to get crews and trains in place. About 300 ,000 passengers use the railroad every day and it connects New York City and Long Island. The MTA has arranged some limited shuttle service, but they said it's going to be crowded. The MTA said riders should work from home and avoid non-essential travel. If a commuter has to get to the city, they'll either have to drive in what's probably going to be heavy traffic or they'll have to work from home until the strike ends.

2:25So long story short, it's going to be a mess. The Transportation Security Administration is launching a pilot screening program for Delta and JetBlue passengers catching morning flights out of Boston Logan. Starting next month, passengers will have the option to go through security at a remote terminal in Framingham, roughly 25 miles from the airport. Passengers can then jump on a shuttle bus, which will drop them off beyond airport security, allowing them to skip check-in lines, K out of curbside drop-offs, and crowded parking lots. TSA said the program is part of a federally funded effort to modernize screening.

2:58Similar pilots have been authorized for eight other locations, including Los Angeles and Atlanta. Two senators on Capitol Hill are looking to ban digital gambling ads targeting minors. A bipartisan bill comes after a recent study found that over a third of male adolescents gambled in the past year. States have introduced rules around the ads in a bid to tackle social media addiction, but critics say they're ineffective alongside the boom in sports betting and prediction markets. The federal bill could hit violators with fines of up to$100 ,000 per ad, but it would exclude broad audience sports broadcasts and direct online searches by minors.

3:36I think we have a lot of parents out there, though, that don't actually know the harms of social media. That's Republican Senator Katie Britt of Alabama, who is introducing the bill alongside Connecticut Democrat Richard Blumenthal with the aim of holding platforms and AI companies accountable for the content they present to children as part of a wider push to address youth safety online. Britt says that social media companies are putting children at risk by prioritizing profits. They are putting people behind their profits and in this case these people are our most vulnerable and our greatest asset that's our children.

4:14China says it has agreed to establish bilateral boards of trade and investment with the U.S. in a move towards shoring up a commercial truce between the world's two largest economies. China's Ministry of Commerce also said the U.S. agreed to sell aircraft as well as aircraft engines and components to China, a boost for one notable industry where the country lags behind the U.S. Jonathan Chang is the journal's Beijing bureau chief. John, you report the details of how these boards would meet and operate still need to be negotiated. But U.S. Trade Representative Jameson Greer said over the weekend that the U.S.

4:47now has strategic stability with China. What does that mean? Yeah, strategic stability has become a bit of the buzzword coming out of this summit. And that really refers to the sense that both China and the U.S. had each other over a barrel. China could at any moment restrict exports or access of the U.S. to these rare earth metals, these rare earth minerals that are useful in all sorts of different industries, including manufacturing, including military applications as well. On the flip side, you have the U.S. and its ability to impose tariffs, and that can also do a lot of damage to a country like China that is so reliant on exports as their main engine of growth.

5:30So I think strategic stability here effectively amounts to something of a ceasefire or a truce between the two sides that neither the U.S. nor China would play their big trump cards here, as it were, and ruin the other side's economy. So to keep this strategic stability going for another few months, if not longer, I think was part of the objective here. You could say it was the central objective. And in that respect, as far as we are aware, is live and is continuing. And what about the timing for China? I note data out this morning showing the economy is slowing. Once you exclude exports, China's economy has not been in good shape, despite the fact that China is at the technological frontier on so many future technologies.

6:13The real estate sector, which was one of the largest engines of growth, has been basically in a deep freeze for the last few years. Investment has plunged. And there's a question about how long the export machine will continue to hum. And then you have retail sales that, of course, is a measure of how domestic spending is going. And it is not going well at all. It was barely positive for the month of April, which is a big decline from where it has been in recent months. And a real sense here that Chinese consumers just don't feel confident spending money. And that's not good for its economy. And it's not good for the world's economy either.

6:53So right now, the Chinese economy, I'm not sure that it's able to take on another big potential blow in the form of strained U.S.-China relations, perhaps another trade war or just more geopolitical pressure from Washington. And I think the leadership in Beijing in that respect was eager to strike a deal and was eager to come to some sort of a detente or to keep the current detente with the U.S. alive. The World Health Organization has declared a global health emergency over an Ebola outbreak in the Democratic Republic of Congo and Uganda and is urging both countries to isolate confirmed cases and anyone those people have been in contact with.

7:34The United Nations Health Agency said around 80 deaths and over 200 possible cases have been recorded so far and warned that the epidemic could still be spreading undetected. The recent cases involve a rare and highly contagious strain of the virus, different from the strain responsible for several past outbreaks. Ebola is a viral fever transmitted through bodily fluids, and there is currently no cure. Coming up with the war in Iran choking off supplies of oil and liquefied natural gas, more countries are turning to coal. That story after the break.

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8:31With the war in Iran effectively shutting the Strait of Hormuz and cutting off liquefied natural gas supplies, coal is making a comeback. Taiwan and South Korea, among Asian countries that are more reliant on LNG imports, are both turning to coal, which emits around double the amount of carbon dioxide as burning natural gas. Even Italy has put its coal plants on standby as the country prepares for a prolonged energy shock. And while some countries are scrambling to shore up energy, fuel may also be in short supply soon. Journal correspondent Georgi Kanchef writes that the straits' closure is drawing down global oil inventories to the point that the world's safety net for fuel is rapidly dwindling.

9:12He spoke to our Luke Vargas. Gurgi, walk us through the last two and a half months, if you could, basically from where oil inventories were at the start of the war, pretty flush from what it sounds like to where they are now. Absolutely. When we started, when the conflict began, there was a lot of oil around in tanks and also on ships in the sea. And that meant that the market had a bit of a cushion. But of course, like with any stockpiles, they're finite. And especially the time when you cannot fill those tanks back up, you're drawing from those tanks. At some point, they start emptying. At this point, there's still a lot of oil in the tanks, but it's emptying at a record fast pace.

9:51And that's a problem because the International Energy Agency expects that wealthy nations will draw another 210 million barrels by end of July. So we're talking about huge amounts of oil being taken out of storage. And at some point, there's various expectations when that point is, we would be reaching kind of operational minimums because those tanks, they cannot be fully emptied for operational reasons. There needs to be some oil for those pipelines, for pressure. So for technical reasons, they cannot be fully emptied. And for example, JP Morgan expects that those stress levels, the absolute minimum levels would be reached by September.

10:28And by June already, so next month, there would be a point where prices would start reacting to that new reality. The highest that oil prices have ever reached, at least for the Brent benchmark, was$148 a barrel. This was in 2008. There are some expectations out there that if the Strait of Hormones remains closed for another few months, this level would be tested. Yeah, Georgi, you even had an expert in your piece from Capital Economics saying we could get to$130,$140 barrel oil by next month. So this could actually be upon us even faster than that. Absolutely, yeah. And that's the thing, because right now, a lot of the expectations on the market that the Strait of Hormuz will open in the coming weeks.

11:09And right now, there's still oil in the storage. So for the next few weeks, the market is okay. But if the Strait of Hormuz doesn't reopen, then the storage drawdowns continue and then prices will react. Giorgi, I mean, in terms of the effects of this as we near these stress levels for reserves, you know, is the pain likely to be felt equally around the world? I would maybe imagine the US is in a slightly better position, but maybe not. Yeah, absolutely. So the US is in a better position given the fact that it's a big oil producer, although kind of the global price of oil is being reflected at the pump in the US.

11:44There are places around the world that are faring much worse in Asia. There's countries like India, Thailand, Taiwan that are approaching these levels of scarcity pretty quickly, especially when it comes to not just crude oil, but also products that are being used in transportation, in making plastics, in daily life, in cooking even. So I'm absolutely right. It's not a unified picture. Globally, event trees are falling fast, but for some places it's much more acute. And finally, Georgi, I don't want to be an alarmist here, but what kind of responses might We expect to see if we continue to approach these levels of stockpile depletion.

12:16You've mentioned higher prices. There's also, of course, demand destruction where countries step in, try to encourage people not to drive, not to fly, all sorts of ways to cut back on fuel consumption. But I'm thinking about even if the war ends now, you've got these stockpiles really low and the world just that much more vulnerable until they can replenish these stockpiles, which can't be a fast process. Absolutely. That's exactly the case. analysts are saying that even if the Strait of Hormuz were to open tomorrow, coming back to pre-war levels is going to take months, if not even until next year.

12:49So that is one factor. And then you have to obviously replenish those stockpiles that have been drawn by now. And if oil prices continue to increase, that will lead to more demand being curtailed, which of course is problematic for the economy because that means that the world will be blurting closer and closer with the recession. And that's the demand side of the equation is something that is quite often underlooked. But as we don't have enough supply, it is really the demand side that has to compensate. Countries will have to pay a higher price for that oil, just so they have a bit more of a safety net in the future.

13:21Georgi Konchev is a foreign correspondent for The Wall Street Journal. Appreciate you as always, Georgi. Thanks so much for bringing us this story. Thank you. And that's it for What's News for this Monday morning. Today's show was produced by Hattie Moyer. Our supervising producer is Sondra Kilhoff. And I'm Daniel Bach for The Wall Street Journal. We'll be back tonight with a new show. Until then, thanks for listening.

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