Oil markets could be a month away from the moment of truth. Brace for a ‘non-linear’ price spike and panic buying, analysts warn
While the Strait of Hormuz remains largely closed, dire warnings about oil supplies have been coming from everywhere lately, as President Donald Trump’s visit to China failed to produce a breakthrough towards reopening the critical waterway.
While investors are trading in hopes that the ceasefire in Iran will remain intact, there is little sign that oil trading will return to normal any time soon, forcing them to confront the reality of worsening shortages and a looming tipping point.
JPMorgan predicted that commercial oil stocks in the developed world “could approach operational stress levels” as early as June. Saudi Aramco He said global gasoline and jet fuel stocks could reach “critically low levels” ahead of summer.
The International Energy Agency has warned that the world is reducing oil stocks at a record pace, with 164 million barrels released by governments and industry as of May 8.
“The rapid narrowing of buffers due to ongoing disruptions could be a harbinger of future price increases,” the IEA said in its latest monthly report.
The United States and Israel launched their war against Iran two and a half months ago, and analysts had expected the Strait of Hormuz to reopen in late May or early June.
This seems unlikely as the US military is still imposing a blockade on Iranian oil and Iran is attacking shipping in the Persian Gulf. Meanwhile, the Navy’s efforts to reopen the strait with warships are on hold.
“But if the Strait remains effectively closed and commercial oil stocks in the OECD continue to decline at the same pace as in April, oil stocks could reach critical low levels by the end of June,” Hamad Hussain, chief climate and commodity economist at Capital Economics, said in a note on Wednesday.
“This would be consistent with Brent crude oil prices reaching an all-time nominal peak and could require more erratic and economically damaging disruptions to oil demand.”
He predicted that if the strait remains closed and stock-out rates remain stable, oil prices could rise to $130-140 per barrel next month.
On Friday, Brent crude futures closed up more than 3% at $109.26 a barrel as China gave no hint that it would rely on ally Iran to normalize tanker traffic.
Oil futures have not yet reached doomsday levels. According to Hussain, this was due to the abundance of supplies at sea when the war began, the record outflow of oil from strategic oil reserves, and the sharp decline in oil imports as China drew from its own stocks.
More supply could be released from oil stocks. However, they cannot drop to zero because certain volumes are needed to maintain the pressure within the storage systems and the daily release flow is limited.
