Western energy officials and Iranian oil producers are racing against mirror-image inventory crises as the closure of the Strait of Hormuz enters its third month. While global consumers face "tank bottoms" as stockpiles vanish, a U.S. naval blockade has left Iran’s supply with nowhere to go, threatening to hit "tank tops" that would force a shutdown of its oilfields.
The inventory cliff
Analysts at JPMorgan warn that oil inventories in OECD countries will reach operational minimums between May 9 and May 30. At that point, the current linear price growth is expected to become exponential. In the U.S. alone, reserves of crude and oil products have plummeted by 52 million barrels following four weeks of steady declines.
- Physical premiums. While Brent crude sits at $108 and WTI is near $102, prices for physical delivery are already trading higher.
- Iranian tactics. Tehran is putting old tankers back into service for floating storage and exploring rail shipments to China.
- Supply bypass. Saudi Arabia and the UAE are mitigating some losses by using alternative export routes that avoid the Strait.
Production holds steady
Despite the supply shock and rising prices, U.S. shale drillers are not ramping up production. A Dallas Fed survey of Permian Basin executives found that rig counts are actually declining as companies demand higher 2027 futures prices before deploying new hardware. These producers cited policy uncertainty and a lack of confidence in current price levels as barriers to growth.
Exxon Mobil CEO Darren Woods cautioned that the market has yet to feel the full magnitude of the disruption. Without a surge in supply or a reopening of the Strait, energy consultancy Energy Aspects predicts global buffers will be entirely exhausted by the end of June.
The JPMorgan deadline for OECD stockpiles hitting operational minimums begins May 9.
