Key Points Strategists indicate that the current stability in the oil market is superficial, with Europe potentially facing a physical crude oil supply shortage as early as the end of this month. Even if the Strait of Hormuz reopens swiftly, the complex supply chain will require time to re-align, leading to delivery delays and continued market pressure. Stalled US-Iran negotiations contributed to rising prices for both Brent and West Texas Intermediate crude on Monday. Market strategists are warning that global crude inventories are being drawn down at an alarming rate, with stock levels potentially not recovering until December 2027. Europe could experience a tangible oil supply shortfall by the end of this month. Jeff Currie, Co-Head of Commodities Research, stated bluntly that a physical crude shortage in Europe could erupt at any moment. The current severe supply tightness is not yet fully reflected in oil prices or in official policy statements from various nations. In an interview on Monday, he noted that as inventories continue to deplete, market anxiety over crude supply will intensify. Once a shortage materializes, prices are poised for a non-linear, sharp increase. "That is when the market will see what price parties are willing to pay for the last barrel of oil," Currie said. He pointed out that the market is currently in a seasonal lull for oil consumption, between the end of the heating season and the start of the peak driving season—traditionally a period of weaker annual demand. However, with the US Memorial Day and UK Spring Bank Holiday approaching, demand for distillates like diesel and gasoline is set to surge significantly. The full impact of the crude supply deficit will then become apparent. International oil prices climbed again on Monday following an International Energy Agency warning about rapidly depleting inventories. A Superficial Market Calm An analysis team led by the Head of Fixed Income and Commodities Research at Société Générale believes the oil market is maintaining only a facade of stability, while the overall supply system is under severe strain. The bank's research report notes that crude inventories are declining at an accelerating pace, and the proportion of global available reserves is extremely low. Continued reliance on drawing down these stocks will push the entire supply system into an operational crisis. Since the escalation of US-Iran tensions, maritime transit through the Strait of Hormuz—which handles about one-fifth of global oil and gas shipments—has been severely disrupted. Société Générale's analysis suggests that even if the strait reopens in early June, restarting the entire physical supply chain for crude transport, unloading, refining, and distribution would require a buffer period of at least 52 days. This time lag implies that millions of barrels of oil per day would still be unable to flow normally, forcing the market to continue depleting inventories that are already nearing critically low levels. Supply Tightness May Persist Long-Term If the reopening of the strait is delayed until late June, the energy market will sink into a deeper and more prolonged supply crisis. A return to supply-demand balance would not occur until late August, with a full market normalization unlikely before September. Should the shipping disruption extend even longer, international oil prices could potentially surge toward $150 per barrel and remain elevated for the remainder of the year. Analysts stated that even if shipping resumes, the subsequent delay in oil deliveries will further widen the inventory gap. This could extend the tight crude market conditions into 2027, pushing back the timeline for a complete market recovery. This underscores the oil market's extreme sensitivity to the timing of the strait's reopening. Influenced by the stalled US-Iran talks, international oil prices continued to rise on Monday afternoon. The international benchmark Brent crude rose 1.4% to $110.73 per barrel. US West Texas Intermediate crude futures gained 1.3% to $106.86 per barrel. Currie remarked, "Those of us who have worked in the energy industry for a long time understand that the situation is already very bad. Iran's actions are aimed at creating an energy supply shock. The most critical issue now is no longer the price of oil, but whether crude can be supplied in normal and sufficient quantities."
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