The global oil market is running closer to its operational floor as the Strait of Hormuz remains closed and inventories continue to drain. Oil has been rerouted around the chokepoint through pipelines in Saudi Arabia and the UAE, but the detour has not come close to replacing the flow lost since Iran began disrupting transit shortly after the U.S. and Israel launched an airstrike campaign in late February.
Roughly 1 billion barrels have disappeared from the market since then, according to IEA data, and JPMorgan estimates the system is still losing another 14 million barrels a day while the strait stays shut. That is why traders keep searching for clues on whether the market can absorb the shock without forcing a price break higher, even as Brent crude has hovered around $100 per barrel and commercial crude and refined-product inventories have been cut back across the globe.
Rebecca Babin said the market is leaning hard on the expectation that diplomacy will eventually reopen the route, even though the flows traders are hoping for have not materialized. “We’re pricing flows that we hope will be coming in a month, but we haven’t really seen that uptick yet,” she said. Her warning lands on a deadline that is now less theoretical than it was a week ago: if no flows begin to resume by the end of June, she said inventory levels will be hitting red-light territory where operations may be affected.
The reason that matters is blunt. Storage tanks with floating roofs need to be at least 20% full to operate, Goldman Sachs research shows, and refineries can fall only so far below 65% of capacity before they start to degrade operationally and lose money. The IEA already coordinated the release of 400 million barrels from member nations’ strategic reserves early in the war, which helped slow the drawdown, but it did not restore normality. Goldman Sachs says the market is likely to reach the lowest global storage levels on record since 2018 even if movement through Hormuz begins to normalize.
That leaves a market trapped between physical scarcity and financial calm. Prices have stayed contained near $100 a barrel even as inventories have plunged, because investors are still betting on a diplomatic resolution rather than a prolonged shutdown. But the math is getting tighter by the day, and Neil Chapman warned at a Bernstein conference on Thursday that Brent could surge to $150 or even $160 a barrel before demand destruction drags prices back down. He said the industry is approaching “unheard-of inventory levels,” and once stocks hit those minimums, there is only one direction left.
For now, the question is no longer whether the closure has hurt the market. It has. The issue is whether enough oil starts moving again before June ends, or whether the world waits too long and discovers that operational minimums are not a warning line but a breaking point.
