The global energy system is burning through its cushions as the Strait of Hormuz remains closed for a third consecutive month. Global oil inventories, which sat at a decade-high 8 billion barrels in February, fell to 7.8 billion barrels by the end of April. Analysts at UBS expect these stockpiles to approach record lows of 7.6 billion barrels by the end of May, a level that JPMorgan warns will begin to stress the physical circulation of the global supply chain.
Winners and Losers
The supply shock has created a sharp divide between producers capable of bypassing the blockade and those trapped by it. The United States has emerged as a primary beneficiary, exporting more oil and diesel than normal to fill the gap, while Russia is seeing the price for its Urals crude jump to nearly $120 a barrel. In the Persian Gulf, Saudi Arabia and the United Arab Emirates are mitigating losses through pipelines that bypass the strait, but Iraq, Kuwait, and Qatar have seen their seaborne exports effectively severed.
- United States: Domestic petrol prices climbed to $4.60 a gallon in May, up from $3 in February, with forecasts suggesting a move past $5 this summer.
- Asia: In India, where 90% of imported liquefied petroleum gas passes through the strait, supply fears have triggered panic buying and restaurant closures.
- Europe: Jet fuel prices have nearly doubled to $1,500 a tonne, leading the International Energy Agency to warn of severe shortages by June.
- Manufacturing: The price of aluminum has jumped 13% since the war began, forcing Ford to predict that its commodity costs will double this year.
Systemic Risks
While billions of barrels remain in storage, only about 800 million barrels are considered "working volume" that can be removed without stalling the infrastructure. JPMorgan analysts compare the situation to blood pressure, noting that the system fails when there is no longer enough volume to maintain circulation through pipelines and tanks. To prevent a total seizure of transportation infrastructure, Rapidan Energy predicts a massive price spike will occur before the third quarter to force a contraction in demand.
The International Energy Agency expects product inventories to hit critical levels by July or August if the blockade is not lifted.
