Global crude oil and fuel inventories are crashing at a record speed as the supply shock from the Middle East is too big to absorb without stock depletion.
While the futures markets trade on sentiment and hopes that a U.S.-Iran deal could soon lead to the reopening of the Strait of Hormuz, the actual physical disruption is enormous. It has already erased the oversupply that the market faced at the start of the Iran war. The initial buffers are gone, and now commercial inventories are depleting so fast that even an imminent reopening of the Strait of Hormuz will not reverse the stock draw for at least two months after flows from the Middle East normalize.
Analysts and executives say the global inventory situation will get worse before it gets better, as the market will need months before a potential relief arrives from an operational Strait of Hormuz.
Global Oil Inventories Crash
“Drawdowns across onshore and commodities on water, along with key hubs such as ARA, the US, and Singapore, are helping bridge supply gaps,” Sumit Ritolia at Kpler wrote in an analysis last week.
“However, inventory support remains finite and cannot sustainably offset prolonged disruptions,” the analyst noted.
Goldman Sachs has estimated that plunging global oil inventories are approaching an eight-year low, with the rate of depletion so fast that it exposes the market to further shocks.
While global oil stocks are “unlikely to hit minimum operational levels this summer, the speed of depletion and supply losses in some regions and products is concerning,” analysts at Goldman Sachs wrote in a note earlier this week.
Total oil stocks globally have now dropped to about 101 days of expected demand. With the Strait of Hormuz inaccessible for nearly all tanker traffic, these stocks could drop to as low as 98 days of demand by the end of May, Goldman’s analysts warned.
Stocks would continue to draw down even if crude flows through the Strait of Hormuz begin to recover in the coming weeks, as the peak summer season is approaching and cargoes from the Middle East – assuming they begin to move through Hormuz – will need weeks to reach destinations.
Related: U.S. Fuel Exports Hit Record High as Hormuz Crisis Reshapes Global Energy Flows
Refined product stocks have been depleting even faster, with fuel stocks now down to 45 days of demand, from 50 days of demand before the war, Goldman Sachs reckons.
The fuel buffers are “approaching very low levels fast,” according to the investment bank’s analysts.
For example, jet fuel stocks held independently in the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage hub fell by 4.7% in the last week of April, to their lowest level since March 2020, as imports crashed, data from Dutch consultancy Insights Global showed last week.
The 2026 surplus scenario was quickly erased by the war with “global hydrocarbon inventories being materially drawn to balance the market, already at a pace of 10 to 13 million barrels of oil per day,” Patrick Pouyanné, chief executive at TotalEnergies SE, said on the supermajor’s earnings call last week.
The world will have consumed about 1 billion barrels of inventories until supplies are restored and reach the market, Pouyanné added.
“We would exit even if the conflict, and I hope so, will end in the month of May, we would exit the conflict with clearly some very low inventories,” the executive noted.
CEO Darren Woods said on ExxonMobil’s earnings call, “it’s obvious to most that if you look at the unprecedented disruption in the world supply of oil and natural gas, the market hasn’t seen the full impact of that yet.”
“There’s more to come if the Strait remains closed.”
Even if the Strait opened up today, “there’s going to be a one to two-month time lag between the Strait opening up and the market seeing normal flow,” Woods said, noting that ships need to reposition themselves and take weeks to get the product to market.
U.S. Stocks Are Depleting, Too
The global stocks drawdown has reached the United States, too.
Crude oil inventories in the United States decreased by 2.3 million barrels during the week ending May 1, the latest data from the U.S. Energy Information Administration (EIA) showed on Wednesday. For total motor gasoline, the EIA reported that inventories had decreased by 2.5 million barrels on top of the 6.1 million barrels lost in the week prior.
The imminent start of the driving season, further weeks of closed Strait of Hormuz, and further drops in U.S. fuel inventories are setting the stage for even higher gasoline prices in the summer, analysts say.
As of May 1, U.S. gasoline stocks were at 219.8 million barrels, per EIA data, which is 4% below the five-year average and the lowest since 2014 for this time of year.
U.S. gasoline stocks are on track to drop to historic lows of below 200 million barrels by the end of August, according to Morgan Stanley.
“The US gasoline market is genuinely tight and tightening further into summer,” Morgan Stanley analysts wrote in a note earlier this week, as carried by Bloomberg.
Despite the demand destruction already taking place in price-sensitive markets in Asia, Africa, and Latin America, the magnitude of this supply shock would support oil and fuel prices even if the Strait of Hormuz opened unconditionally to free traffic today, as it would take months before the return of some semblance of normality.
By Tsvetana Paraskova for Oilprice.com
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