Global Oil Stocks Plunge, Next Price Surge May Disrupt Markets and Economies

Global oil reserves are declining dangerously as negotiations to reopen the Strait of Hormuz remain stalled. Executives and analysts within the energy sector warn of a potential new shock in oil prices in the coming weeks, one severe enough to disrupt broader financial markets.

Concerns have emerged that the next surge in oil prices could threaten economic growth, bond yields, and stock markets. Neil Chapman, Senior Vice President at ExxonMobil, stated at the Bernstein conference in New York on May 28: "We are approaching unprecedented inventory levels. In fact, these are extremely low levels. You can debate whether inventories will reach such low points within two to three weeks. But once that threshold is crossed, you will see a sharp rise in prices."

U.S. Energy Secretary Chris Wright announced plans to add 40 million barrels to the U.S. Strategic Petroleum Reserve following the resolution of the conflict with Iran. This move aims to rebuild government stockpiles and enhance American energy security.

Chapman further noted that if inventory levels fall further, Brent crude prices—which underpin pricing for over 60% of global oil trade—could climb to $150 or $160 per barrel.

On the previous Tuesday, Torell Bosoni, Head of Oil Industry and Markets at the International Energy Agency, warned that global oil stocks might reach critical levels before the peak summer demand period if current withdrawal rates persist.

Mohamed Bgreen, Vice President and Chief Market Analyst at Rosenberg Research, explained: "Once inventories dwindle, most market adjustment efforts will focus on price. This means either higher costs for consumers or forced demand reductions." He added that this tipping point could be reached by the end of June.

Apostolos Tzitzikostas, European Union Commissioner for Transport, stated there are no signs of aircraft fuel shortages in Europe over the coming months despite the energy sector shock caused by the Iran conflict. However, he acknowledged that rising prices are prompting airlines to cancel unprofitable routes.

Data Assets & Alpha, a JPMorgan subsidiary, projected based on the bank’s research that oil prices are likely to rise rapidly after mid-June unless traffic through the Strait of Hormuz returns to pre-conflict levels.

The U.S. Energy Information Administration reported on Wednesday that U.S. crude inventories, including Strategic Petroleum Reserve stocks, dropped to 791 million barrels in the week ending May 29, marking the lowest level since February 2024.

Since the start of the conflict, U.S. crude stocks have declined by approximately 64 million barrels and have fallen for eight consecutive weeks.

Lori Logan, President of the Federal Reserve Bank of Dallas, expressed concerns that strong economic growth and continued robust corporate earnings may necessitate interest rate hikes this year to bring inflation back to the 2% target.

Shouhro Zukhritdinov, an oil trader, commented: "I believe the risk of a second price shock is real, but the key point is that it may result from depletion of reserve inventories rather than a Strait of Hormuz closure as in the first shock."

Analysts at Data Assets & Alpha indicated that U.S. Strategic Petroleum Reserve withdrawals, switching to alternative fuels, and other mitigating factors may not suffice if disruptions persist.

U.S. crude oil inventories have declined for six consecutive weeks amid ongoing global supply disruptions and growing concerns about tightening market safety margins.

Investors have noted that the crisis has already caused a permanent risk premium to be added to crude oil prices, with consequences for inflation, bond yields, and consumer spending.

Joseph Tanios, Chief Investment Strategy Officer at Northern Trust Asset Management, described recent developments as signaling a permanent structural shift in energy markets. He said: "The Strait of Hormuz is now a permanent geopolitical choke point," adding that a return to pre-conflict oil prices below $70 per barrel seems unlikely even if tensions ease.

Tanios also indicated that the global impact will be uneven, with Europe and Asia remaining more vulnerable to persistent energy price inflation, while the United States is relatively insulated due to its net oil exporter status.

Adam Shickling, Chief Economist at Vanguard, characterized rising oil prices as a "modest obstacle" to the U.S. economy, citing strong domestic production and significant investments in artificial intelligence that have offset consumer pressures.

For households, the effect depends less on a specific price level and more on the duration of elevated prices. Consumers still enjoy some protection against shocks, as fuel costs constitute a smaller share of income compared to previous oil crises, though this cushion diminishes over time.

Phil Blancato, Chief Market Strategy Officer at Osage, warned that sustained price increases over the next three months, coinciding with the summer driving season, will further depress consumer spending. He stated: "Consumer confidence is already at record lows, but if oil prices remain at this level for another three months or rise sharply in the short term, we will begin to see real economic effects." He recommended diversifying investment portfolios, including seeking opportunities outside the stock market.