The global oil market is running out of options: ‘You cannot print molecules’
The global oil market is running out of options to keep prices from rising to new heights, experts say, with physical deadlines quickly approaching. Since Iran began disrupting transit through the Strait of Hormuz shortly after the US and Israel began an airstrike campaign in late February, the global oil market has lost roughly 1…
The global oil market is running out of options to keep prices from rising to new heights, experts say, with physical deadlines quickly approaching.
Since Iran began disrupting transit through the Strait of Hormuz shortly after the US and Israel began an airstrike campaign in late February, the global oil market has lost roughly 1 billion barrels of oil, per IEA data.
Even with pipelines running through Saudi Arabia and the UAE to reroute oil around the waterway, the market continues to lose an additional 14 million barrels a day while the strait is closed, according to data from JPMorgan. Yet prices have remained contained around $100 per barrel as investors look for quick resolution.
“The market is taking very seriously that the diplomatic process is going to be the eventual outcome, and that flows are going to resume,” Rebecca Babin, senior energy trader at CIBC Private Wealth, told Yahoo Finance.
“We’re pricing flows that we hope will be coming in a month, but we haven’t really seen that uptick yet,” she said.
Commercial inventories of both crude oil and refined products, including petroleum, gasoline, diesel, and jet fuel, have all plummeted globally as stores have been expended with no backfill.
To backfill those losses, the IEA coordinated the release of 400 million barrels of oil from member countries’ strategic reserves early in the war. Governments and private-sector companies around the world have steadily drawn down their inventories. But there are hard limits to how low oil inventories — which cannot be effectively backfilled due to the closure of the Strait of Hormuz — can go before the global oil system hits operational minimums.
Read more: How oil price shocks ripple through your wallet, from gas to groceries
Storage tanks with floating roofs that sit on top of the oil, which make up most of the onshore storage capacity, must be at least 20% full to operate, according to Goldman Sachs research. Pipelines must have oil along their entire length to maintain operations, and refineries can’t fall much below 65% of their capacity without operationally degrading and losing money.
Even if oil movement through the Strait of Hormuz were to begin normalizing, the oil market is likely to reach the lowest global storage levels on record since 2018, when satellite data largely became available to track global stocks, per Goldman Sachs.
“If no flows start resuming by the end of June, we will be hitting those inventory levels that flash red lights where we’re kind of tipping into that inflection point where operations may be impacted,” Babin told Yahoo Finance. “So this month that we’re looking at here is extremely critical in terms of the market thinking that those flows will resume and we will avoid that outcome.“
If inventory levels hit those operational floors, prices are likely to rise quickly, Exxon Mobil (XOM) senior vice president Neil Chapman said at a Bernstein conference on Thursday. Prices on Brent crude (BZ=F), which touched a near-four-year high of $118.35 per barrel earlier in the war, could reach upward of $150 or $160 per barrel before demand destruction brings prices back down, Chapman said.
“We’re approaching unheard-of inventory levels — I mean, really, really low levels,” Chapman said. “You can debate whether that’s going to hit those really low levels in two weeks or three weeks … Once you get to the minimum inventory levels and all-time low inventory levels, there’s only one way to go.”
The situation has not yet been as bad as it could be, experts told Yahoo Finance. Coming into 2026, the oil market was projected to be massively oversupplied, at a surplus of anywhere from 2 million barrels per day to more than 4 million per day. Goldman Sachs strategists estimated international Brent and US WTI crude (CL=F) contracts would trade between $50 and $60 per barrel.
China, which spent 2025 buying oil volumes far above domestic demand, has been drawing down its stocks and reducing refinery operations. Governments in Southeast Asia have instituted fuel rationing programs and shortened work and school weeks. In the US, weekly crude oil exports reached an all-time high of more than 14.17 million barrels per day in the week ended April 24.
But those cushions can only take the market so far, said Jeff Currie, co-chair of Abaxx Markets and prior co-head of commodities at Goldman Sachs.
“Strategic stocks are meant to be the last line of defense, not the first, but this time Washington spent them first, managing headlines, not risk,” Currie said. “When you have no crude in storage, then and only then will the spot price move to a level to destroy demand.”
“You cannot print molecules,” Currie added.
Vessels anchored at the Strait of Hormuz, as seen from Musandam, Oman, on May 25, 2026. (Reuters/Stringer)
Even if the potential temporary US-Iran deal reported by Axios on Thursday is publicly confirmed and commercial traffic resumes through the Strait of Hormuz, strategists say it would likely take months for the system to normalize.
Ship owners must have confidence in safe passage, and several hundred vessels must make their way out of the strait for weeks-long journeys to their end markets. Tens of millions of barrels’ worth of production have been shut down across the Gulf region, and all of it must be brought back online. While US exports are increasing, futures prices haven’t increased enough to trigger a widespread growth in production from the US shale industry, according to Jefferies analysts Lloyd Byrne and Sam Burwell.
Futures prices have remained contained regardless.
“The market is seeing these headlines and saying, ‘Okay, I feel comfortable that we’re going to avoid that very significant red line for inventory draws,’” Babin said. “But it’s just yet to be determined.”
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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