The global crude oil inventory is being depleted at a startling rate, even as a growing number of traders place bets that the Middle East crisis is nearing its end and oil prices will turn lower.

Reported exchange data for positions held through June 2 shows that portfolio managers have consistently increased their short crude oil positions since early April. Data compiled by energy analyst John Kemp indicates that short positions in Brent crude have roughly tripled from late March to early June.

The prevailing market belief is that a ceasefire agreement and diplomatic negotiations will ultimately lead to the resumption of normal traffic through the Strait of Hormuz, restoring global crude oil supplies to normal. However, in stark contrast to the financial markets' optimistic outlook, the supply-demand balance in the physical crude oil market is tightening rapidly.

Data from the International Energy Agency (IEA) shows that approximately 13 million barrels per day of global crude oil supply has been disrupted due to the ongoing blockage of the Strait of Hormuz. In just the period from March to April, global crude oil inventories fell by about 250 million barrels, equivalent to a daily drawdown of 4 million barrels from the inventory cushion.

As inventories continue to decline, the market faces a pressing question: if the supply disruption lasts longer than expected, how long can the current inventory buffer hold out?

Inventory Buffer is Vanishing Rapidly

Compared to the optimism in the futures market, the signals from the spot market are entirely different.

Global crude oil stocks are in a persistent downtrend, with inventory levels at Cushing, Oklahoma—the delivery hub for WTI crude—approaching the minimum operating range. Concurrently, floating storage at sea and commercial onshore inventories are also dwindling. In recent years, inventories have acted as a market buffer, smoothing price volatility whenever supply was shocked. But as stocks are continuously drawn down, this buffering capacity is weakening.

Chevron CEO Mike Wirth previously warned that the market's "cushions and shock absorbers" are being gradually depleted, and the market's ability to absorb supply gaps is significantly weaker than at the start of the crisis. In other words, the reason oil prices haven't seen more dramatic increases is largely reliant on inventory drawdowns. Once inventories fall to critical levels, supply-demand imbalances will be reflected more directly in prices.

Strait of Hormuz Reopening Won't Solve Problems Immediately

The market's most optimistic expectation is that once the Strait of Hormuz resumes normal operations, a massive volume of crude will flow back into the global market.

But reality is far more complex than this simple vision. First, shipping companies need confirmation that security risks have truly subsided. Second, the re-routing and loading of a large number of tankers takes time. Finally, the voyage from the Gulf region to end-users in Asia, Europe, and North America typically takes several weeks.

This means that even if a comprehensive ceasefire were achieved tomorrow, it could be weeks before the new supply actually reaches end markets. Meanwhile, the world is entering the peak summer demand season, with refinery run rates rising and transportation fuel demand increasing. The market's rate of crude consumption is inherently at its annual high. Therefore, a timing mismatch could occur between supply restoration and peak demand.

Upside Price Risks are Building

Many institutions believe the market's most overlooked risk currently is not demand risk, but the supply risk that emerges once inventories are exhausted.

Analysts at ING point out that if the supply disruption persists into the third quarter, against a backdrop of seasonally strengthening demand, there is room for oil prices to move higher. More importantly, as inventories continue to fall, the market's sensitivity to supply shocks will keep increasing. Gaps that were previously absorbed by inventories may in future translate directly into spot market tightness and price increases.

For the crude oil market, the truly pertinent question may no longer be when the Strait of Hormuz will reopen, but rather how long global inventories can last. As the inventory buffer gradually depletes, the "swift supply recovery" narrative that the market is betting on may soon face a reality check.