Global oil stockpiles could hit record lows if Hormuz Strait stays closed
Global oil stocks are falling to record lows to offset major supply disruption in the Middle East and will approach critical levels unless the Strait of Hormuz is reopened.
The International Energy Agency warned in its monthly update this week that high prices for oil and fuel will likely peak demand this summer.
“The rapid narrowing of buffers due to ongoing disruptions could be a harbinger of future price increases,” the IEA said.
The oil market did not fully feel the impact of the loss of supply, thanks to the commercial stocks held by the sector, strategic reserves controlled by governments and tankers in transit. ExxonMobil CEO Darren Woods made a statement regarding the oil giant’s first quarter earnings.
Those stocks cushioned the impact of the outage in March and April, Woods said. But the CEO said commercial stocks will eventually drop to levels that can serve as a source of supply.
“We anticipate that if this happens and the strait remains closed, we will continue to see prices rise in the market,” Woods said.
Inventories are near record lows
Swiss bank UBS estimated in a report on Tuesday that stockpiles stood at just over 8 billion barrels at the end of February, the highest in almost a decade. UBS analysts said stocks fell to 7.8 billion barrels by the end of April.
UBS analysts said that if demand remained the same each month, inventories would approach record lows of 7.6 billion barrels by the end of May. Inventories falling to this level would stress the supply chain, JPMorgan analysts said in an April 30 note.
JPMorgan analysts said billions of barrels in inventory may seem like a lot, but in reality only about 800 million barrels are available without straining the system. The rest, they said, is necessary to keep pipelines and tanks minimally filled for the supply chain to function efficiently.
“Like blood pressure in the human body, the issue is circulation,” said Natasha Kaneva, head of global commodity strategy at JPMorgan. “The system fails not because of the loss of oil, but because the circulation network no longer has sufficient working volume.”
JPMorgan estimates that oil stocks would fall to a critically low level of 6.8 billion barrels by September if Hormuz was still closed at that time. According to Rapidan Energy’s forecast, product stocks will reach critical levels earlier, in July or August.
The global economy “will collapse due to the inability of critical transportation infrastructure to obtain fuel at all costs,” Rapidan analysts said in a May 7 note.
However, analysts have noted that the chances of stocks reaching these critical low levels are very low. Instead, oil and product prices will rise rapidly, reducing demand, causing a “severe economic contraction.”
“This is likely to happen before 3Q26,” Rapidan analysts said.
