Global oil inventories are declining at a record pace due to the ongoing closure of the Strait of Hormuz, a key Middle Eastern oil transit route, raising the risk of significant price spikes, according to the International Energy Agency (IEA) and multiple industry analysts [1]. The IEA warned in its monthly update that 'rapidly shrinking buffers amid continued disruptions may herald future price spikes ahead,' especially as the market heads into peak summer demand [1].
Exxon Mobil CEO Darren Woods stated during the company's first-quarter earnings call that the oil market has so far been cushioned from the full impact of the supply disruption by commercial inventories, government-controlled strategic reserves, and tankers in transit. However, Woods cautioned that as commercial inventories continue to fall and the strait remains closed, prices are expected to rise further [1].
UBS estimated that global oil inventories were just over 8 billion barrels at the end of February, near a decade high, but had dropped to 7.8 billion barrels by the end of April. If current demand persists, inventories could approach record lows of 7.6 billion barrels by the end of May, UBS analysts said [1]. JPMorgan analysts highlighted that only about 800 million barrels are truly available without straining the system, as the rest is required to keep pipelines and tanks operational [1]. JPMorgan forecasts that inventories could fall to a critically low level of 6.8 billion barrels by September if the Strait of Hormuz remains closed, while Rapidan Energy predicts product inventories could hit critical levels as soon as July or August [1].
Rapidan analysts warned that if inventories reach these critical lows, the global economy could 'seize up, with critical transportation infrastructure unable to source fuel at any price.' However, they believe it is very unlikely inventories will reach such levels, as price spikes are expected to curtail demand and trigger a severe economic contraction before that point, likely before the third quarter of 2026 [1].
CONCLUSION
The ongoing closure of the Strait of Hormuz is rapidly depleting global oil inventories, raising the risk of severe price spikes and potential economic contraction. While analysts believe inventories are unlikely to reach critically low levels, the market faces significant stress and volatility as supply buffers shrink and demand remains strong.