JPMorgan commodity strategist Natasha Kaneva has issued a warning: there is a "major discrepancy" in the global oil supply and demand ledger. Supply disruptions exceeding 13.7 million barrels per day (bpd) in April are being interpreted by the market as an acceleration in demand contraction. However, the underlying logic is the opposite—the so-called demand decline is largely a statistical illusion on the books, where supply shortages are manifesting as apparent demand loss. When the market finally clarifies this confusion, the clearing cost will be far more severe than currently observed.
Numerically, JPMorgan estimates observable inventory drawdowns reached 7.1 million bpd in April. According to Goldman Sachs data, when invisible refined product stocks are included, the global daily drawdown in April surged to 10.9 million bpd, the fastest monthly consumption rate since 2017. Since the outbreak of conflict in the Persian Gulf, the cumulative drawdown is estimated to have reached 474 million barrels. Concurrently, Persian Gulf oil flows, including pipeline diversions, have dropped to approximately 9.3 million bpd, only 40% of normal levels.
Kaneva's core assessment is that the observed global oil demand decline of about 4.3 million bpd in April has already surpassed the peak demand loss during the 2009 global financial crisis. Yet, current oil prices are not historically extreme and are far insufficient to explain such a large and rapid demand collapse. A more plausible explanation is that most of the demand loss is not due to buyers voluntarily abandoning consumption, but rather direct physical shortages suppressing actual purchasing activity—supply losses are being reflected through the demand ledger.
This distinction is critical. It means the adjustment so far has primarily pressured vulnerable markets like the Middle East, Asia, and Africa, while consumers in Europe and America have yet to feel the true price pain. Kaneva warns that even with an aggressive contribution from inventory draws, a supply-demand gap of approximately 2 million bpd still needs to be filled. It is only a matter of time before European and American markets are forced to participate in the adjustment—this implies oil prices need to rise further, perhaps significantly, as the market will ultimately be forced to clear.
The supply and demand ledgers "do not match up," with traditional buffer mechanisms nearly exhausted. Kaneva points out in her latest report that the physical laws of commodity markets are immutable: supply plus inventory drawdown must equal consumption plus inventory build. When a production shortfall occurs, the gap does not vanish; the system must sequentially activate spare capacity, draw on inventories, conduct emergency stock releases, and finally suppress demand through high prices. However, in the current shock, this adjustment mechanism has almost entirely failed.
The supply shock is unfolding with rare scale and speed: global oil supply disruptions were 9.1 million bpd in March and expanded to 13.7 million bpd in April. Yet the traditional first line of defense—spare capacity—is virtually impossible to activate. The vast majority of global spare capacity is concentrated in Saudi Arabia and the United Arab Emirates, which are effectively cut off from the international market, rendering the industry's traditional shock absorber useless.
The United States, as the global marginal supplier, requires 3 to 6 months for a scalable shale oil production response even with significant price increases, with an expected contribution of only 300,000 to 700,000 bpd; larger-scale increases typically take 6 to 12 months to materialize. Russia has spare capacity of about 300,000 bpd, but with ongoing attacks on energy infrastructure, Russian supply has recently declined by approximately 350,000 bpd. With the first line of defense breached, inventory drawdowns become the only buffer—this is what Kaneva refers to as "the clock starting to count down."
The "false demand decline" represents a demand contraction on the books that is actually a mirror image of the supply gap. JPMorgan data shows global oil demand fell by an average of 2.8 million bpd in March, with the decline widening to 4.3 million bpd in April. This scale exceeds the roughly 2.5 million bpd demand contraction seen at the peak of the 2009 global financial crisis—which occurred against a backdrop of global recession and a sharp contraction in industrial activity.
What puzzles Kaneva is that this demand slump is happening in a relatively moderate price environment. Brent crude futures averaged around $100 per barrel in both March and April, with spot prices averaging $107 in March and about $123 so far in April; while refined product prices have nearly doubled compared to pre-war levels, the crude price level is not historically extreme enough to solely explain such a large and rapid demand reduction.
Kaneva concludes that most of the demand decline is not traditional, price-driven voluntary demand destruction, but rather consumption interruption forced by physical shortages—buyers are not choosing to buy less because prices are too high, but because there is simply no oil available to buy. This "forced demand absence" statistically appears as a demand drop but is essentially a reflection of supply losses on the demand side of the ledger, constituting a "false demand decline."
Of the 4.3 million bpd demand loss in April, 87% was concentrated in the Middle East (directly impacted by the war), Asia (structurally dependent on Gulf crude and products), and Africa (dependent on Gulf middle distillates, with thin inventories and limited fiscal response capacity). As cargoes are diverted to higher-bidding Asian buyers, some demand parties are being directly priced out of the market.
Record inventory drawdowns are approaching operational minimums, serving as the clearest real-time alarm in the current imbalance. JPMorgan estimates observable commercial and strategic inventory draws were 4.0 million bpd in March, surging to 7.1 million bpd in April. JPMorgan also notes that due to limited visibility into some refined product stocks, the actual drawdown could be significantly larger than reported data.
Goldman Sachs data corroborates this. According to Goldman, global visible inventory draws averaged 6.3 million bpd in April; when including invisible refined product stocks in non-OECD countries, the total daily drawdown reached 10.9 million bpd, the largest monthly consumption rate since 2017. Since the Persian Gulf conflict began, the estimated cumulative drawdown has reached 474 million barrels.
Supply-side pressure is equally severe. Iranian oil exports have plummeted to about 300,000 bpd, and US exports have hit pipeline capacity limits. Goldman Sachs anticipates that even if the Strait of Hormuz fully reopens, flow recovery will be gradual due to logistical bottlenecks like capacity restarts, tanker transit times, and pipeline rates, meaning global inventory declines could persist into May or beyond.
Notably, inventory drawdowns have an unbreachable natural floor—the operational minimum stock level. Once this底线 is reached, and if supply cannot be restored, the only rebalancing mechanism will be a forced collapse in demand. This is the critical trigger condition for the "greater shock" Kaneva refers to.
The market is being forced to clear, and the shock will spread to Europe and America. Kaneva's calculations reveal an unavoidable arithmetic problem: approximately 14 million bpd of supply has been removed. Even with an aggressive estimate of 8 million bpd in inventory contributions, the market still faces a gap of about 2 million bpd that must be closed through more substantial demand reduction or more aggressive inventory drawdowns.
She warns this gap is "too large for emerging markets to digest alone." Europe and America will inevitably need to participate in the adjustment, and their participation prerequisite is further—perhaps substantial—oil price increases. European distillate and jet fuel markets are already tightening further; while the Americas, with relatively ample domestic supply flexibility, face lesser short-term impact, rising US pump prices are already suppressing elastic driving demand, and increasing airfares are gradually softening jet fuel demand.
In terms of product structure, the adjustment is first appearing in price-sensitive segments with thin margins, particularly petrochemical feedstocks and jet fuel. Shortages of liquefied petroleum gas (LPG), ethane, and naphtha from the Gulf have forced significant run cuts or even shutdowns at propane dehydrogenation (PDH) units and steam crackers across Asia; this petrochemical feedstock-driven demand contraction accounts for about 55% of the total 4.3 million bpd demand loss in April. Official Indian data shows LPG consumption fell 13% year-on-year in March. Jet fuel accounts for about 11% of the total demand loss, mainly reflecting Middle East flight groundings; Kaneva expects Asian and European airlines to further cut capacity in May, with jet fuel demand continuing to weaken.
Gasoline price increases are currently significantly smaller than for distillates, reflecting its lower reliance on Gulf supply. But Kaneva warns that as refinery constraints tighten the overall product balance, this relative protection will gradually erode—especially with the US summer driving season approaching. Kaneva's final conclusion aligns with the iron law of commodity markets: the market will clear, and the cost will be far greater than what is currently shown on the books, a scenario from which both consumers and financial markets will struggle to escape.