Global oil inventories are falling at a record clip as the Strait of Hormuz remains nearly closed, threatening to destabilize the global energy supply chain before the third quarter. Since the war began in late February, tanker traffic through the choke point has plummeted from 1,500 vessels per month to just 180 in April. This disruption has removed roughly 12% of global oil consumption and 2% of annual liquefied natural gas from the market.
Shrinking inventory buffers
Commercial and strategic stockpiles initially cushioned the shock, but those buffers are nearing critical levels. UBS estimates that global inventories, which stood at 8 billion barrels in February, fell to 7.8 billion by the end of April. Analysts at JPMorgan warn that while billions of barrels remain, only about 800 million are "available" before the system loses the working volume necessary to keep pipelines and tanks operational. If the strait does not reopen, inventories are expected to approach record lows of 7.6 billion barrels by the end of May.
- United States: Domestic petrol prices jumped from $3 in February to nearly $4.60 per gallon, with forecasts suggesting a rise above $5 this summer.
- Russia: Despite not increasing sales volume, Russia saw the price of oil sold off the Gulf of Finland hit $120 a barrel in early April, up from $41 before the war.
- Saudi Arabia: Though exports fell by 150 million barrels, the kingdom used bypass pipelines to generate an estimated $9.2 billion in additional revenue due to higher prices.
Downstream shortages
The supply squeeze is moving beyond crude into refined products and specialized gases. In Europe, kerosene prices have soared from $800 to $1,500 a tonne, leading the International Energy Agency to warn of severe jet fuel shortages by June. In Asia, the closure of a major helium plant in Qatar has threatened semiconductor manufacturing in South Korea and Taiwan, as the gas is required to cool supermagnets used in chipmaking. Rapidan Energy predicts that if the strait remains closed, refined product inventories could hit critical levels by July or August.
While U.S. oil majors like Exxon Mobil have benefited from higher revenues, CEO Darren Woods noted that commercial inventories will eventually reach a floor where they can no longer bridge the supply gap. Without a breakthrough in negotiations to reopen the waterway, analysts expect a sharp spike in prices to curtail demand and prevent a total seizure of transportation infrastructure. Rapidan Energy expects this price-driven economic contraction to materialize before the start of the third quarter.
