Time is running out as oil markets hurtle toward nightmarish scenarios, with the West bracing for ‘tank bottoms’ and Iran racing to delay ‘tank tops’

(SeaPRwire) –   The Western nations and Iran are confronting two starkly different oil market crises that could emerge within weeks.

As the Strait of Hormuz remains mostly shut down over two months into the war launched by the U.S. and Israel against Iran, oil stockpiles in major consuming nations are being swiftly depleted.

Frederic Lasserre, head of analysis at the major commodities trader Gunvor Group, stated at a late April industry conference that should the closure persist for another month, oil markets would essentially deplete their reserves and reach “tank bottoms.”

In a similar vein, JPMorgan analysts reported that oil inventories in OECD nations are projected to reach “operational minimums” between May 9 and May 30, “after which price hikes will become exponential instead of linear.”

Concurrently, the U.S. naval blockade has trapped Iran’s oil exports, causing its domestic inventories to swell as supplies are stranded. If storage reaches its limit and the sector hits “tank tops,” producers would be forced to make severe production cuts, potentially causing lasting harm to oilfields.

Iran coincidentally faces a similar timeframe as the West. Officials with knowledge of Iran’s energy policy informed Bloomberg that the country has a shrinking window of about one month, at present output rates, before it exhausts its storage space. JPMorgan and Kpler have issued comparable projections.

However, Iran is rushing to postpone this critical juncture by voluntarily cutting crude production, as reported by Bloomberg. The country is also said to be recommissioning older tankers for use as floating storage and has considered transporting supplies via rail to China.

Iran’s oil industry also possesses significant expertise in scaling back production without compromising long-term capacity and has voiced assurance that it will break through the U.S. blockade.

Currently, oil futures have not hit the worst-case projections of $150-$200 per barrel. On Friday, West Texas Intermediate was trading near $102, while Brent crude exceeded $108, although physical delivery prices are greater.

To help soften the impact of the supply disruption, Saudi Arabia and the United Arab Emirates have utilized alternative export pathways that avoid the Strait of Hormuz. The U.S., Japan, Europe, and other leading economies have orchestrated releases from their strategic petroleum reserves.

Asian nations have also increased their dependence on the U.S., which recently overtook Saudi Arabia as the globe’s leading oil exporter. However, this increase was primarily fueled by reductions in U.S. stockpiles. Combined reserves of crude and petroleum products have fallen by 52 million barrels following four straight weeks of drawdowns.

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Storage capacity will remain under pressure because the majority of U.S. oil producers do not intend to increase output, despite the potential for substantial profits offered by higher prices.

In a survey of oil and gas executives carried out by the Dallas Fed, which includes the prolific Permian Basin, participants indicated that supply is unlikely to shift significantly due to the uncertainty clouding the longer-term perspective.

“Even after nearly a month of oil above $90 per barrel, rig counts declined, signaling little confidence that prices will hold,” one respondent said. “Closing the supply gap from the Iran conflict will require greater certainty and higher 2027 future prices to incentivize additional rig and frack deployments.”

A respondent in the oilfield services sector complained that “Uncertainty is problematic in the oil and gas business, and this administration is the definition of uncertainty.” A peer echoed that remark, saying “The unpredictable nature of the current administration makes business modeling near impossible.”

With no significant increase in new supply and inventories dwindling, leading oil analysts have cautioned that global markets are approaching a precipice.

Paul Sankey, president of Sankey Research, recently affirmed that the coming months “will be an ongoing, absolute disaster” even if the Strait of Hormuz is reopened without delay.

Gulf states such as Kuwait and Iraq, which lack simple alternative routes around the Strait of Hormuz, also face the risk of long-term damage to their oil production capacity, as output has been halted during the conflict and might not rebound rapidly.

Amrita Sen, founder of the consultancy Energy Aspects, forecast that stockpiles will be drained by the end of June if the war continues. At that stage, price mechanisms will be severely distorted.

“Essentially you can pick a number when it comes to the oil price,” she told the Financial Times. “We will just not have any buffers.”

In spite of these dire predictions, U.S. stock markets climbed to new record levels in the past week, lifted by robust corporate earnings and momentum from the AI sector’s expansion.

But on Friday, Exxon Mobil CEO Darren Woods raised a warning that markets still fail to grasp the scale of what may be imminent.

“It’s obvious to most that if you look at the unprecedented disruption in the world supply of oil and natural gas, the market hasn’t seen the full impact of that yet,” he told CNBC. “There’s more to come if the strait remains closed.”

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