Brent crude futures rose 3% to $109.26 a barrel on Friday as the Strait of Hormuz remained effectively closed. Despite a two-and-a-half-month military campaign by the U.S. and Israel, Iranian attacks on ships in the Persian Gulf and a continuing U.S. blockade of Iranian oil have kept the critical waterway blocked. A recent trip to China by President Donald Trump also failed to produce a breakthrough that would restore tanker traffic.
Shrinking inventory buffers
Global oil stockpiles are being drawn down at a record pace to compensate for the lost Middle Eastern supply. The International Energy Agency reported that 164 million barrels were released by governments and industry as of May 8. However, the total supply loss of 1 billion barrels is already dwarfing the IEA's total planned release of 400 million barrels.
- Operational stress. JPMorgan warned that commercial inventories in the developed world could hit operational stress levels by early June.
- Fuel shortages. Saudi Aramco expects global gasoline and jet fuel stocks to reach critically low levels before the summer.
- Rationing. Some Asian nations have already implemented oil rationing measures to manage the supply squeeze.
Analysts at Capital Economics estimate that if the current depletion rate holds, Brent crude could reach $130 to $140 a barrel next month. UBS added that the exhaustion of these buffers increases the risk of panic buying and extreme price volatility if physical dislocations intensify. If the Strait of Hormuz remains closed through the end of June, inventories are expected to reach critical lows that may force more damaging cuts to global demand.