Oil markets are approaching a June tipping point as the Strait of Hormuz remains largely closed following the U.S. and Israel’s war on Iran. Despite expectations that the waterway would reopen by early June, Iranian attacks on ships and a U.S. military blockade have kept traffic stalled. President Donald Trump’s recent trip to China failed to produce a breakthrough, leaving Brent crude futures up 3% to $109.26 a barrel.
Shrinking inventory buffers
Global stockpiles are currently being drawn down at a record pace to compensate for the lost Middle Eastern supply. The International Energy Agency reported that 164 million barrels have been released by governments and industry as of May 8. Analysts warn that these buffers are nearing exhaustion:
- JPMorgan expects commercial oil inventories in the developed world to reach operational stress levels by early June.
- Saudi Aramco warned that global supplies of gasoline and jet fuel could hit critically low levels before the summer travel season.
- Capital Economics estimates that 1 billion barrels of oil have already been lost, significantly outweighing the IEA’s planned 400-million-barrel release.
The price risk. If the strait remains closed and inventories continue to drop at April’s pace, Capital Economics predicts Brent crude could reach an all-time nominal peak between $130 and $140 a barrel next month. UBS analysts added that the exhaustion of these buffers increases the likelihood of panic buying and extreme price volatility if physical dislocations intensify.
While some Asian countries have already started rationing, the U.S. Navy’s efforts to reopen the strait with warships remain on hold. The next critical window for a supply break or a non-linear price spike arrives in late June.
