U.S. New York Fed Economic Policy Advisor: Oil Inventory Buffer Depleted, Global Supply Shortfall Shifted to Importers Like China
Thomas Klitgaard, an economic policy advisor at the Federal Reserve Bank of New York, explains that U.S. oil production rose from 8 million barrels per day in 2010 to 21 million barrels per day in 2025, accounting for 70% of global growth. The resulting surplus supply and inventory buffer absorbed a 12-million-barrel-per-day drop in supply caused by Middle East conflict in March 2026. However, U.S. inventories stopped declining in July, meaning the burden of consuming global stockpiles is now shifting to importers such as China.
The outbreak of conflict in the Middle East in early 2026 caused a sudden 12-million-barrel-per-day drop in global oil supply, sending prices soaring but not to unprecedented levels. In an analysis released on November 5, Thomas Klitgaard, an economic policy advisor at the Federal Reserve Bank of New York, noted that the key factor was the excess supply and inventory buffer created by fifteen years of expansion in the U.S. oil sector—though this buffer has now been exhausted.
Hydraulic fracturing technology enabled U.S. crude oil and liquid fuel production to surge from 8 million barrels per day in 2010 to 21 million barrels per day in 2025, representing 70% of the increase in global production during that period. After the ban on crude oil exports was lifted in 2015, petroleum exports increased by an additional 6 million barrels per day, while imports fell by 2 million barrels per day. By 2025, global supply continued to outpace demand, with inventories accumulating at a rate of 2 million barrels per day; in the first two months of 2026, this rate reached 4 million barrels per day.
When global production plummeted by 12 million barrels per day in March, the previously accumulated excess supply significantly shortened the gap that needed to be filled. In the second quarter, the U.S. Strategic Petroleum Reserve released crude oil at a rate of 1 million barrels per day, while commercial inventories declined by 0.7 million barrels per day; together, these drawdowns accounted for roughly half of the global inventory decline. Net exports increased by 2.5 million barrels per day, directing more oil toward international markets.