Strait of Hormuz Still Not Navigable, Inventories Critical. Institutions Warn Oil Market May Reach Panic Tipping Point in First Week of June.

TradingKey - With navigation through the Strait of Hormuz yet to resume, energy-focused research firm HFI Research has warned of a potential major turning point in the market landscape by June. The firm noted that if the strait remains closed through the first week of June, global oil inventories hitting historical lows could trigger panic buying and hoarding by nations, potentially plunging the market into genuine chaos.

HFI Research suggests that the market's current confidence in a rapid supply recovery is essentially an "inertia-driven optimism bias"—overlooking the irreversibility of inventory depletion. Data indicates that as of mid-May, Brent crude has held steady above $100 per barrel for a consecutive month, peaking at $109.26, a more than 30% increase from pre-conflict levels. This price level fully reflects the scale of the current supply disruption.

ExxonMobil ( XOM) Chairman Darren W. Woods also issued a similar warning: "The market is currently relying on floating storage, strategic reserves, and compressed commercial inventories to function, but these buffers are vanishing quickly." He noted that while over 200 million barrels of offshore oil were available globally at the start of the conflict, that figure had plummeted to under 60 million barrels by mid-May. Once commercial inventories hit minimum operating levels, the market will lose its final line of defense, potentially triggering a price surge.

Woods also cautioned that even if the Strait of Hormuz reopens, market recovery will be a protracted process. Approximately 30% of global tankers are currently mispositioned; rerouting and clearing cargo backlogs will take at least two to four weeks, while damage assessments and capacity restoration at some Persian Gulf refineries could take months.

Sharp Inventory Drawdown and Supply Gap Pressures

Global supply-side tensions are continuing to escalate. According to the latest data from the U.S. Energy Information Administration (EIA), total U.S. petroleum and refined product inventories fell to 1.6 billion barrels for the week ending May 8, a cumulative decrease of 67 million barrels from early April levels. A simultaneous report from the American Petroleum Institute (API) showed that crude inventories unexpectedly dropped by 9.1 million barrels last week, significantly exceeding the market expectation of a 3.4 million-barrel decline and far outpacing the previous week's drawdown of 2.188 million barrels. This faster-than-expected inventory drawdown underscores the robust resilience of U.S. refinery demand while reflecting a continued tightening of global crude supply liquidity.

The rapid depletion of global inventories has become a focal point for the market. Data from the International Energy Agency (IEA) shows that globally observed oil inventories declined at a record pace in March and April, with a combined decrease of approximately 250 million barrels over the two months—falling by 129 million barrels in March and another 117 million barrels in April.

Simultaneously, due to the closure of the Strait of Hormuz, cumulative global crude oil supply losses have reached 12.8 million barrels per day (bpd) since February. In April, global crude supply further declined to 95.1 million bpd, with output from the Gulf region remaining 14.4 million bpd below pre-war levels.

The rapid decline in inventories has intensified market concerns over supply shortages. HFI Research noted that the oil market may have reached a tipping point and could even enter a vicious cycle of supply-shortage-induced panic buying and hoarding. Although the firm did not provide a new price forecast, it had previously estimated that crude oil prices could surpass $150 per barrel.

Against the backdrop of the U.S.-Iran conflict driving up global oil prices and supply emergencies in some energy-vulnerable nations, the U.S. Treasury Department recently announced a second extension of the sanctions waiver for Russian seaborne oil, attempting to stabilize the international crude spot market by releasing portions of Russian oil inventories.

High prices dampen demand.

Meanwhile, persistently high oil prices are creating a reverse drag on global oil demand along a transmission chain spanning shipping, refining, aviation, and petrochemical industries.

The latest industry forecasts indicate that average daily global oil demand in 2026 may decrease by 420,000 barrels year-over-year to 104 million barrels, with the demand contraction in the second quarter expected to reach 2.45 million barrels per day. The significant pullback on the demand side provides intuitive evidence of the dampening effect of high oil prices on the market; however, the root cause of the current supply-demand gap in the global oil market remains the structural contraction on the supply side.

Estimates from the U.S. energy sector are even more conservative, projecting that global oil demand will only achieve a modest increase of 200,000 barrels per day in 2026—a growth rate far below previous market expectations.

The department noted that demand weakness is primarily driven by the combined influence of high oil prices, tight fuel supplies, and fuel-saving policies implemented by various countries. Furthermore, if global financial conditions tighten further and equity market volatility intensifies, downward revisions to demand expectations will continue to exert pressure on forward oil prices.

However, until the navigation stalemate in the Strait of Hormuz is broken, weakening demand is more likely to slow the pace of oil price increases rather than directly offsetting the risk premium resulting from supply shortages.

From the perspective of market sentiment, the crude oil market has entered a stage dominated by risk premiums. With a lack of de-escalation signals in the Middle East, coupled with the support from a sharp decline in U.S. inventories, capital continues to flow back into the energy sector, driving up bullish sentiment in the market.

The trajectory of the Middle East situation remains one of the core variables affecting the oil market. NATO’s latest statement indicated that if normal navigation through the Strait of Hormuz is not restored by July, it may consider initiating a coordinated deployment.