The focus since the U.S.-Iran conflict began has been on assessing damage to crude production within the Gulf and supply-demand imbalances outside the region, as trade through the Strait of Hormuz has been obstructed for nearly two months. Following the ceasefire negotiations between the U.S. and Iran on April 8, analysis suggested that the geopolitical phase for oil markets might be entering its second half. This view considered both the anticipation of de-escalation and the potential shift in fundamental pressures towards testing land-based inventories and end-consumption demand. As April concludes, the geopolitical situation remains unclear, with signs of stricter Strait blockades and the depletion of in-transit cargo buffers. The challenge of drawing down land-based oil inventories is now imminent.
Looking ahead, a lower trajectory for OECD oil inventories in April-May appears difficult to avoid, and Strategic Petroleum Reserve (SPR) releases may not fully alleviate short-term overshooting pressures on commercial stocks. Regardless of the geopolitical outcome, the average Brent crude price for the second quarter of 2026 is likely to remain elevated. This report also introduces a new global crude spot price series for comprehensive, high-frequency tracking of market prices and differentials.
Expectations for de-escalation emerged first, but progress towards reopening the Strait has been slow, bringing the land inventory drawdown challenge to the forefront. After initial ceasefire talks in early April, the anticipation of reduced tensions eased market sentiment, pushing Brent prices below $100 per barrel. However, the actual resumption of trade through the Strait of Hormuz remains difficult. Data indicates that the average daily oil transit through the Strait in April was about 430,000 barrels per day, with only three days exceeding 1 million barrels per day—less than 10% of normal levels. Premiums in the crude spot market confirm that physical supply tightness persists. The spread between Murban and Dubai crude remains at a historically high level of around $10. Additionally, Saudi Arabia raised the Official Selling Price (OSP) premium for crude exports to Europe and Asia in May by $25 and $17, respectively, the largest adjustments since 2021. Brent crude in the North Sea also maintains a relatively high premium.
The transmission of trade disruptions from sea to land takes time. Although exports of crude and refined products from the Gulf region halted abruptly in early March, cargoes that had already departed continued to arrive at their destinations until early April. Consequently, inventory drawdown pressure in March was primarily absorbed at sea. Global seaborne crude in transit decreased by approximately 140 million barrels in March, reflecting asymmetric changes in global loadings and arrivals and absorbing most of the inventory pressure from the supply-demand imbalance. For land-based inventories, preliminary statistics show OECD commercial oil stocks increased by about 6 million barrels in March, while SPRs decreased by about 1.5 million barrels, resulting in a net inventory build of roughly 4.5 million barrels.
With the arrival buffer now exhausted, pressure on land-based inventories has formally begun in April. Arrivals of Middle Eastern cargoes have dwindled to near zero, the volume of crude in transit has stabilized, and land inventories have started to decline. It is estimated that oil inventories outside the Gulf could face a draw of around 350 million barrels in April, representing about 6% of current global land-based oil stocks. Based on current regional inventory distribution, a preliminary projection suggests the deviation of total OECD oil inventories from the five-year average could widen from -1% at the end of March to -7% by the end of April. If transit through the Strait of Hormuz does not resume in May, crude production cuts from Gulf countries could expand further to 15 million barrels per day, potentially pushing the OECD inventory deviation to a record low of -13%.
OECD stockpile releases are unlikely to prevent short-term overshooting of commercial inventories, and high-frequency data may already be showing early signs. OECD countries began implementing the first round of coordinated stockpile releases in April. The total support plan amounts to 426 million barrels, including 284 million barrels from SPR releases, 115 million barrels from commercial stock draws, and 27.5 million barrels from production increases in Canada and Mexico. Calculated against oil demand, these releases are projected to reduce total OECD oil inventory cover from about 89 days to 80 days.
The SPR component of the first round could provide a buffer of nearly 40 days for OECD commercial oil inventories. This implies that if the Strait of Hormuz remains closed by late May, total OECD inventory cover could fall to around 80 days—the level expected after the initial SPR releases. However, considering constraints on the actual pace of SPR drawdowns, the deviation of OECD commercial oil inventories from the five-year average for April is projected to fall to -6%. If trade disruptions persist, this deviation could reach -15% by the end of May.
High-frequency tracking of commercial oil inventories in major OECD nations across the Americas, Europe, and Asia indicates that above-seasonal drawdown pressures may already be emerging by mid-April. Even with SPR releases underway, Japan's commercial crude stocks and European port refined product inventories have fallen to low levels for this time of year. In the United States, sequential drawdown pressures on both crude and product stocks are also becoming apparent.
A low inventory path now seems unavoidable, suggesting the average Brent price will likely stay high in the second quarter. After nearly two months of disrupted oil exports via the Strait of Hormuz, significant above-seasonal drawdowns in global land-based oil inventories during April-May appear inevitable. Therefore, regardless of geopolitical developments, the average Brent price for Q2 2026 is expected to remain elevated. In one scenario, if the Strait remains closed in May, leading to Middle Eastern production cuts expanding to 15 million barrels per day, OECD inventory deviations could fall to a record low of -13%. In this case, Brent prices could potentially rise towards $120 per barrel, a previously identified risk scenario. In a de-escalation scenario where Strait trade resumes, an estimated 300 million barrels of stranded inventory within the Gulf would gradually be released, replenishing stocks drawn down outside the Gulf over the previous two months. However, this would likely not immediately reverse the low inventory trajectory. Restarting upstream production and midstream operations in the Middle East would require stable trade resumption expectations and significant time. Middle Eastern crude processing rates in April are estimated to be 3.5-4 million barrels per day below the January-February average, with full recovery potentially taking 2-3 months. In a de-escalation scenario, the Q2 2026 average Brent price might stabilize around $90 per barrel before declining further in the second half of the year.
Risks include unexpected developments in the geopolitical situation, economic growth falling significantly below expectations, and demand destruction exceeding forecasts.
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