Oil prices are approaching a potential tipping point as the Strait of Hormuz remains effectively closed following the start of the U.S. and Israeli war on Iran. Despite hopes for a diplomatic breakthrough, Brent crude futures rose 3% to end last week at $109.26 a barrel after President Trump’s visit to China failed to secure a plan for reopening the waterway.
Shrinking inventory buffers
Global stockpiles are being depleted at a record pace to compensate for the lost Middle Eastern supply. The International Energy Agency (IEA) reported that 164 million barrels were released by governments and industry as of May 8. However, the estimated 1 billion barrels lost so far far exceeds the IEA's total planned release of 400 million barrels.
- Operational stress. JPMorgan expects commercial inventories in developed nations to reach critical levels by early June.
- Fuel shortages. Saudi Aramco warned that global supplies of gasoline and jet fuel could reach critically low levels before the summer travel season begins.
- Rationing. Several Asian countries have already initiated fuel rationing measures to manage the supply squeeze.
The price risk. Capital Economics warns that if the current depletion rate continues through June, Brent crude could surpass its all-time nominal peak, reaching between $130 and $140 a barrel. This "non-linear" spike would likely be driven by panic buying as physical supplies become dislocated from the market. While prices were previously stabilized by high volumes of oil at sea and Chinese stockpile drawdowns, those buffers are nearly exhausted.
The U.S. Navy’s efforts to clear the strait with warships are currently on hold while Iran continues to attack vessels in the Persian Gulf. Whether the waterway reopens by the end of June remains the deciding factor for global energy stability.
