Exxon Mobil Corp. (XOM.US), the largest oil and gas major in the United States, warned on Thursday that petroleum inventories are poised to drop to historically low levels within weeks, potentially forcing oil prices into a new surge and curbing demand. Top Wall Street commodity analysts have recently cautioned that the situation at the Strait of Hormuz is no longer about "opening as soon as possible" but is nearing a stage where "stable passage must be restored promptly." Once commercial and strategic inventories approach "minimum operating levels," oil prices could shift from linear increases to non-linear jumps.
Neil Chapman, a senior vice president at Exxon, stated at the Bernstein Strategic Decisions Conference in New York, "We are approaching unprecedented inventory levels." Chapman warned, "I mean, inventories are really, really low. You can debate whether it hits those truly low levels in two weeks or three. Once you reach that point, you will see prices spike." The veteran oil and gas executive indicated that when inventories hit historic lows in the coming weeks, spot prices for Brent crude cargoes could surge to between $150 and $160 per barrel. He noted, "When prices reach a certain level, demand destruction will restore the supply-demand balance."
The International Energy Agency (IEA) stated that the supply disruption caused by the geopolitical conflict leading to the closure of the Strait of Hormuz is creating the largest supply-side shock in history. The front-month July Brent futures contract settled below $94 per barrel on Thursday, primarily as traders renewed hopes for a long-term peace agreement between the U.S. and Iran, which would reopen the vital waterway.
**1 Billion Barrels of Supply Lost; New Oil Price Rally Brewing**
According to IEA statistics, Iran's closure of the Strait of Hormuz may have already deprived the market of approximately 1 billion barrels of oil supply, marking the largest oil supply disruption in history. Swiss multinational investment bank UBS noted last Friday that the global oil market is showing increasing signs of inventory and supply tightness as transport via the Strait of Hormuz remains disrupted and stockpiles continue to decline. The bank's research report stated that combined global oil inventory draws observed in March and April totaled 246 million barrels, and by the end of May, cumulative production losses could exceed 1 billion barrels.
UBS indicated that the significant inventory decline suggests the market remains "severely undersupplied." The research firm pointed out that even with a slight increase in oil stored on tankers due to rerouted U.S. exports to Asia, onshore crude and refined product inventories are falling rapidly. Since the conflict involving Iran began in late February, the effective blockade of the Strait of Hormuz has severed one of the most critical shipping routes supplying crude oil, natural gas, and refined fuels to global customers, significantly driving up energy prices and exacerbating inflation concerns among global investors.
Wall Street financial giant Citigroup published a report stating that if long-term peace negotiations between the U.S. and Iran remain challenging, leading to a prolonged blockade and control of the Strait of Hormuz, the international oil benchmark Brent crude price could rise further from its recent pullback near $100, potentially even setting new cyclical highs.
Chapman stated at the conference that global oil inventories have so far buffered the shock, but this situation "cannot last forever." The IEA warned earlier this month that inventories are being drawn down at a record pace. Member countries of the organization had previously agreed in March to release a record 400 million barrels of oil to mitigate the impact of the supply disruption.
Over the past two months, oil industry executives have consistently warned that the crude futures market is not reflecting the actual scale of supply disruption caused by the Middle East conflict. Chapman said, "I don't know if it's two to three weeks, or three to four weeks. What I'm really saying is, once you hit minimum operating inventory levels and record low inventory levels, prices only have one direction to go. That's the stark reality of the situation."
**Strait of Hormuz: The Chokepoint for Oil Prices; Futures Market Bets on Talks, Physical Market Nears Tipping Point**
The situation at the Strait of Hormuz is no longer about "opening as soon as possible" but is nearing a stage where "stable passage must be restored promptly." If stable navigation, resumed Gulf exports, and a slowdown in inventory draws are not seen within the next two to four weeks, the international oil benchmark Brent crude trading back above $100 may only be the first phase, with the $120 to $150 range potentially re-emerging as Wall Street's core stress test scenario. The reason is that the shock has evolved from a geopolitical risk premium into a tangible inventory drawdown problem.
Previous data from the U.S. Energy Information Administration (EIA) shows that in 2024, approximately 20 million barrels per day of oil and petroleum products were transported via the Strait of Hormuz, equivalent to about 20% of global liquid petroleum consumption. Additionally, about one-fifth of global liquefied natural gas trade passes through the strait. In other words, the Strait of Hormuz is not an ordinary shipping lane but a vital artery of the global energy system. If its obstruction persists, the market cannot fully rely on alternative routes or short-term production increases to compensate.
From the perspective of oil and gas executives, futures prices are still trading on hopes for a ceasefire, but the physical market and inventory system are approaching a tipping point. The IEA's May oil market report shows that, with tanker transport through the Strait of Hormuz still restricted, cumulative supply losses from Gulf producers have exceeded 1 billion barrels, forcing the disruption of over 14 million barrels per day of supply. The IEA also stated that global oil inventories fell by 246 million barrels in March and April, a record pace of drawdown.
The role of inventories is to buffer shocks, but inventories are not an infinite reservoir. Once commercial and strategic inventories approach "minimum operating levels," prices will shift from linear increases to non-linear jumps. Recent developments in U.S.-Iran relations have reinforced the judgment that inventories are nearing bottom and that the Strait of Hormuz must regain stable passage as soon as possible.
On May 28, the U.S. continued to impose new sanctions targeting Iran's military petroleum sales, including vessels and related entities suspected of involvement in Iranian crude and petroleum product exports. This indicates that even amid ceasefire or negotiation signals, U.S. pressure on Iran's energy revenue has not ceased. Meanwhile, the market continued to fluctuate that day around the potential extension of a U.S.-Iran ceasefire, the reopening of the Strait of Hormuz, and possible diplomatic arrangements, highlighting the extreme fragility of any so-called "ceasefire agreement." Should hostilities resume, sanctions escalate, or navigation talks break down, oil price risk premiums would swiftly return to the forefront.
If the Strait of Hormuz remains unstable and closed in the coming weeks, a new round of oil price increases is highly likely, and it may not be a mild rise but a rapid surge driven by inventory levels, insurance costs, freight rates, physical market scrambling, and refinery restocking. The first to be impacted would likely not be regular gasoline but jet fuel, diesel, petrochemical feedstocks, and spot purchases outside of long-term contracts by Asian importers. The European Union has also warned that if the Strait of Hormuz situation does not improve, the European jet fuel market will tighten further. Although physical shortages have not yet materialized at the end-user level, price pressures are already evident.