Potential Record Low Oil Inventories#
Global oil inventories may drop to unprecedented levels in the coming weeks if the Strait of Hormuz remains effectively closed, according to UBS. Economist Arend Kapteyn highlighted that the current rate of oil drawdowns could lead to all-time low inventory levels by the end of April. This situation raises concerns about a significant supply shortage and a potential spike in crude oil prices.
Impact of Hormuz Closure#
Kapteyn explained that while pipeline flows from Saudi Arabia and the United Arab Emirates, along with ongoing Iranian exports and releases from International Energy Agency inventories, could compensate for about half of the oil lost due to the Hormuz shutdown, it would still result in a shortfall of approximately 10 million barrels per day (Mb/d). This shortfall would lead to rapid depletion of global crude and product inventories.
Uneven Inventory Distribution#
The distribution of oil inventories is not uniform across countries. For instance, China has about four months' worth of crude imports stored, while many low-income Asian economies could reach critical inventory levels much sooner. This disparity raises the risk of panic buying, as countries may rush to secure supplies before their inventories run out.
Price Predictions#
The implications for oil prices are significant. If the Strait of Hormuz remains closed, Kapteyn suggests that oil prices could conservatively reach around $120 per barrel by the end of March and $150 per barrel by the end of April. Without a clear reduction in demand, prices could potentially soar to $160 per barrel.