Oil held near $110 a barrel even after Iran shut the Strait of Hormuz and immediately took 14 million barrels a day offline. Gas is at $4.39. Analysts had expected $150 oil by now, and Kpler’s Matt Smith said he would have expected prices above $200.
The gap is large because this is the biggest oil supply disruption in history. When Russia attacked Ukraine in 2022, a threatened 3 million-barrel hit pushed oil above $120 and gas to $5. This time, the market has absorbed a much larger loss with a smaller price move.
Inventories bought time
JPMorgan said 580 million barrels of crude were sitting on tankers and in onshore storage before the war. Strategic reserve releases and the Trump administration’s de-sanctioning of Russian and Iranian oil added more supply to the chain. Together, JPMorgan’s Natasha Kaneva said those buffers are plugging only about 8 million barrels a day of the shortage.
- Demand fell. JPMorgan estimates oil demand is down at least 4.3 million barrels a day, more than the 2.5 million-barrel drop during the 2009 financial crisis.
- Europe is warning about imminent jet fuel shortages.
- Asian countries have cut plastics production or shut factories because of feedstock shortages.
- JPMorgan said LPG consumption in India, a key cooking fuel, has fallen 13%.
Speculators are also helping cap prices. CNN cited a 2023 academic paper that said speculative traders account for about 11% of open interest in crude contracts. RBC’s Helima Croft said the White House has convinced part of the market that the war will end soon.
The cushion is thinning. U.S. crude inventories unexpectedly fell 6.2 million barrels last week, and gasoline and distillate stockpiles also dropped. Crude is up 20% in less than two weeks. If the Strait stays closed into summer, the remaining storage buffer becomes the number that matters.
