June Could Be a Turning Point for the Global Oil Market... Both Fuel Shortages and Reopening of the Strait of Hormuz Remain Possible

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[The Financial News] As tensions in the Middle East remain unresolved ahead of the summer travel season, warnings are growing that global gasoline and jet fuel inventories could fall to dangerous levels.
Investment banks have warned that an inventory crisis could hit next month. They also offered a cautious view that the Strait of Hormuz could reopen if the United States and Iran reach a ceasefire agreement.
On the 11th local time, Financial Times (FT) reported that Amin H. Nasser, CEO of Saudi Aramco, said that "the pace of depletion in onshore inventories is accelerating sharply" and that "the decline in refined fuels, especially gasoline and jet fuel, is particularly pronounced."
According to Nasser, a cumulative 1 billion barrels of oil supply has been disrupted worldwide since the outbreak of the Iran war and the threat of a closure of the Strait of Hormuz. As long as the strait remains blocked, another 100 million barrels of supply are being lost each week.
Nasser said inventories are currently the only buffer, but warned that they, too, are being depleted.
Oil prices have shown extreme volatility, rising for 10 straight weeks and surging to as high as $126 per barrel last month before retreating to around $100 on hopes that the U.S. administration would work to resolve the conflict.
On the 12th, July Brent Crude Oil rose 0.30% to $104.51 per barrel, while July delivery WTI also gained 0.31% to $98.40.
Oil prices rose that day after U.S. President Donald Trump rejected Iran's ceasefire proposal, signaling that the Middle East crisis could drag on.
Since the Iran war began on February 28, Brent Crude Oil and WTI prices have climbed 40%.
With the Strait of Hormuz, through which one-fifth of global oil shipments pass, effectively blocked, Asian countries have already begun cutting demand, while Western countries are holding out by relying on commercial and strategic reserves.
Nasser criticized energy traders for overestimating the amount of inventory still available. He said, "Only a very small portion of stored oil is actually available for immediate use," adding, "The rest is tied up in routine operations, such as filling pipelines or maintaining minimum levels at the bottom of tanks."
He also noted that the International Energy Agency (IEA) is coordinating the largest strategic reserve release in history, but said even a combined daily maximum of 2 million barrels from the United States and Europe would not be enough to solve the shortage.
Nasser said Saudi Aramco is considering expanding export capacity at Yanbu Port on the Red Sea to reduce future dependence on the Strait of Hormuz. He warned that "if supply disruptions continue for just a few more weeks, it will take much longer for the market to rebalance," and added that if the strait is not reopened by mid-June, market instability could last into next year.
The financial sector is offering both bearish and bullish views on the oil market.
JPMorgan Chase also warned in a report that commercial oil inventories in advanced economies will reach stress levels by early June, and that strategic reserves will no longer be able to cover the Middle East supply shortfall.
Natasha Kaneva, head of global commodities strategy at JPMorgan Chase, said, "The next shock is more likely to take the form of a refined-fuel and end-user fuel crisis than a traditional spike in crude oil prices."
\r\nKaneva also said the situation could pressure the United States and Iran into reaching a ceasefire agreement, and predicted that the Strait of Hormuz would eventually reopen in June.
\r\nHowever, she warned that if talks collapse, it could trigger a sharp rise in refined-fuel prices and, in turn, global inflation.
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jjyoon@fnnews.com Yoon Jae-jun Reporter