Oil market could enter ‘red zone’ by July as stocks dwindle ahead of summer travel season, IEA chief says

Oil markets could soon enter a "red zone" as global stocks deplete and as demand picks up during the summer travel season, the head of the International Energy Agency warned on Thursday.

IEA Executive Director Fatih Birol said the single most important solution to the Iran war energy shock is a full and unconditional reopening of the strategically vital Strait of Hormuz.

If it fails to reopen and no new oil is coming online from the Middle East, an ongoing drawdown in global stockpiles combined with an uptick in demand during the summer travel season means oil markets "may be entering the red zone in July or August," Birol said, without elaborating further.

His comments came during a Chatham House session on the Strait of Hormuz crisis and global energy security.

The IEA has previously said the global market is facing the most severe disruption in its history. That's despite, Birol said, the market having benefitted from being in the "fortunate" position of entering the crisis with a surplus to help absorb the shock. These stocks, however, are now eroding, Birol said.

Typically, roughly 20% of the world's oil and liquefied natural gas passes through the Strait of Hormuz, but shipping traffic has virtually halted since U.S. and Israeli-led strikes against Iran started on Feb. 28.

The IEA chief said the "biggest pain of this crisis will be felt in developing Asia and Africa," adding that he was just as concerned about the impact of the Iran war on global food security as he was on energy security.

Birol warned it will likely take "a lot of time" for Middle East oil production and refining to return to pre-war levels, saying that the IEA stands "ready to act" to coordinate further strategic oil reserve releases if necessary.

In March, the global energy watchdog coordinated the release of 400 million barrels of oil from strategic reserves to address the supply disruption triggered by the Iran war. It marked the largest such action in the organization's history.

Lydia Rainforth, head of European equity strategy at Barclays, described the state of play as an "incredibly tough situation" for global oil markets.

"This is the largest supply outage that we've ever had. We're now exceeding a billion barrels of lost production and that's going to take a long time to … normalize, even if the Strait opens tomorrow," Rainforth told CNBC's Ben Boulos on Thursday.

Oil prices traded higher during afternoon deals in London as market participants closely monitored the outcome of U.S.-Iran talks.

International Brent crude futures traded 1.9% higher at $106.92 per barrel, reversing some of its losses in the previous session. U.S. West Texas Intermediate futures were last seen trading up 2.4% at $100.59 per barrel. Both contracts are up around 45% since the Iran war began.