Strategists indicate that the oil market is displaying a facade of stability, yet Europe could face a physical supply shortage before the end of this month. Even if the Strait of Hormuz reopens promptly, the intricate supply chain requires time to untangle, which will still result in delays and strain. These warnings emerge as Brent crude and West Texas Intermediate prices edged higher on Monday, amid stalled negotiations between the U.S. and Iran. London — Strategists are cautioning that global oil inventories are depleting sharply, with stockpiles potentially not recovering until December 2027, while Europe risks encountering physical shortages as early as November. Jeff Currie, Executive Chairman of Abaxx Commodity Exchange, stated that Europe could experience a physical shortage "at any time," and the severity of the ongoing supply tightness has not yet been reflected in oil prices or policymakers' rhetoric. In an interview with CNBC's "Squawk Box Europe" on Monday, Currie noted that oil supply concerns will intensify as inventories are drawn down, adding that once shortages hit, oil prices will see a "non-linear" surge. "Only then will we discover what someone is willing to pay for that last barrel of oil," Currie remarked. Currie explained that the oil market is currently in a "shoulder season" — traditionally the weakest phase of the annual commodity demand cycle, occurring between the end of heating demand and the start of driving season. However, with the U.S. Memorial Day and the U.K. Spring Bank Holiday approaching, demand for diesel, gasoline, and oil is set to rise significantly. "That's when you'll start to feel it," Currie said. "Superficial Stability" A team of analysts from Societe Generale, led by Mike Haigh, Head of Fixed Income, Commodities, and Foreign Exchange Research, described the oil market as maintaining a "superficial stability" — while the underlying system remains "highly stressed." The analysts highlighted in a Monday report, "Inventories are declining rapidly, and the critical point is that only a small portion of global stocks is truly available without pushing the system into operational stress." Since the outbreak of U.S.-Iran tensions on February 28, traffic through the Strait of Hormuz, which typically accounts for about one-fifth of global oil and gas supply, has been severely restricted. Societe Generale analysts noted that even if the strait reopens in early June, the complex physical supply chain processes involved in bringing more oil to market — including tanker transit, unloading, refining, and distribution — would still imply a delay of at least 52 days. This lag means millions of barrels per day of oil remain unavailable to the market, further depleting already rapidly shrinking inventories. "Persistent Tightness" Societe Generale stated that if the strait reopens by the end of June, it would lead to "deeper, more persistent tightness," with physical relief delayed until late August, and meaningful normalization not expected until September. A further delay in reopening could push oil prices to $150 per barrel and keep them elevated for the remainder of the year. The analysts explained, "Even if flows resume, the timing of the delay will create a deeper inventory deficit, extending the supply tightness into 2027 and further postponing a full normalization, underscoring the system's sensitivity to even minor changes in the reopening timeline." On Monday afternoon, oil prices climbed slightly as negotiations between Washington and Tehran appeared to stall. The international benchmark Brent crude rose 1.4% to $110.73 per barrel, while U.S. West Texas Intermediate futures reached $106.86 per barrel, up 1.3%. "Anyone who gets their hands dirty in this industry will tell you the situation is dire," Currie said. "The Iranians want to inflict pain. The key here isn't the price of oil — it's the availability of oil."
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