Global oil markets are approaching a simultaneous storage crisis as the Strait of Hormuz remains closed two months into the U.S.-Israel war with Iran. While Western nations face "tank bottoms" where inventories hit operational minimums, Iran is racing to avoid "tank tops" as its exports remain bottled up by a U.S. naval blockade.
The inventory deadline
JPMorgan analysts project that OECD oil inventories will reach operational minimums between May 9 and May 30. At that threshold, experts warn price increases will become exponential rather than linear. Global buffers are already thinning after U.S. reserves of crude and oil products dropped by 52 million barrels following four weeks of consecutive declines.
- Brent crude topped $108 on Friday, though physical delivery prices are trading higher.
- West Texas Intermediate hovered around $102 as the market weighs the supply shock.
- Strategic reserves are being released by the U.S., Japan, and Europe to cushion the blow.
- Alternative routes are being utilized by Saudi Arabia and the UAE to bypass the closed strait.
Drilling remains stalled
Despite the supply crunch, U.S. producers are not rushing to increase output. A Dallas Fed survey of executives in the Permian Basin found that rig counts actually declined despite oil trading above $90. Executives cited political uncertainty and a lack of confidence in long-term price stability as barriers to new rig and frack deployments.
Exxon Mobil CEO Darren Woods warned that the market has not yet seen the full impact of the disruption if the waterway remains obstructed. Consultancy Energy Aspects predicts global stockpiles could be fully exhausted by the end of June.
