(P1) Global oil inventories have fallen by four days of demand since late February, pushing the energy market toward a structural crisis as the blockade of the Strait of Hormuz continues. The U.S. Energy Information Administration now expects global oil stocks to decline by an average of 2.6 million barrels a day in 2026.
(P2) "Disrupted production leads to large oil inventory draws, particularly in May and June," the EIA said in its May Short-Term Energy Outlook. The agency noted that the collective shut-in of 10.5 million barrels a day of crude production from Middle East producers is forcing a rapid depletion of global stockpiles.
(P3) The most acute pressure is on refined products. Goldman Sachs estimates global commercial refined product inventories have fallen from 50 to 45 days of demand, with non-OECD nations seeing a 10 percent drop. In the Asia-Pacific region, excluding China, crude inventories have hit a 10-year low after imports from the Persian Gulf fell by more than 40 percent.
(P4) A prolonged closure could push Brent crude toward $130 to $150 a barrel, according to Morgan Stanley. The market is now watching whether developed-nation commercial inventories breach critical operating levels, a point JPMorgan analysts warn could be reached as early as June.
The impact of the inventory drain is not being felt evenly. While global crude inventories remain relatively stable, the shortage of refined products like jet fuel, diesel, and LPG is creating regional crises. In Europe, Goldman Sachs analysts calculate that commercial jet fuel stocks could fall below the IEA's 23-day critical threshold in June, with the UK at highest risk due to its import dependency.
The situation in Asia is exacerbated by the actions of China, the world's largest oil importer. Chinese refiners have cut crude imports to a four-year low, opting to draw down their estimated 1.2-billion-barrel stockpile rather than pay elevated prices, according to analysis by Reuters columnist Clyde Russell. At the same time, Beijing has restricted exports of refined fuels to protect its domestic market, worsening shortages in neighboring countries like Thailand, Malaysia, and Bangladesh.
Markets are pricing a 56.5% probability of WTI crude hitting $110 by May, according to Kalshi prediction market data. The primary catalyst remains the military and diplomatic situation around the Strait of Hormuz. Traders will be closely monitoring any signs of de-escalation that could lead to a reopening of the critical waterway. Key data releases from the EIA and OPEC+ on inventory levels will be scrutinized for any deviation from the current drawdown trend. Even if the strait reopens, analysts at JPMorgan caution that it would take weeks for normal flows to resume, keeping a risk premium in the market.
This article is for informational purposes only and does not constitute investment advice.
