MW Stocks may be missing this looming danger in the oil market
By Isabel Wang
Deeper cuts to Iranian oil output could force the stock market to reckon with crude prices, which for the most part have been dismissed
Wall Street has been dismissing the oil shock as temporary and instead focusing on robust tech earnings.
Iran is running out of places to park its oil - and that could end up being a problem for Wall Street.
Within weeks, the oil-storage problem could force Tehran to further cut crude production, especially if the U.S. continues its blockade of the Strait of Hormuz. The U.S. stock market has barely begun to price in such a supply-shock risk, experts say. Earlier this week, both the S&P 500 index SPX and the Nasdaq composite COMP closed at record highs.
The U.S.-Iran standoff and strait blockade have left Iran with 12 to 22 days until it is no longer able to store more oil either onshore or on floating tanks. This storage issue has already forced the country to reduce daily oil production, which is on track to drop by an additional 1.5 million barrels by mid-May, according to Homayoun Falakshahi, head of crude oil analysis at Kpler.
Iran's national oil company has already started reducing output, according to Kpler, and deeper cuts in crude production would further tighten supplies and push oil prices even higher. That threatens to reignite inflation fears that the U.S. stock market lately has been setting aside. It also could be a painful surprise for investors who assumed the worst of the surge in energy prices was behind them.
See: Iran war is fueling a bond selloff ahead of Fed Chair Jerome Powell's final press conference
The stock market is becoming "more numb" to the tensions in the Middle East, said Matt Lloyd, chief investment strategist at Advisors Asset Management. Investors have become "resilient and apathetic at the same time," he said.
But if the supply of oil is cut further, given Iran's roughly 5% share of global oil production, Lloyd believes that could have a more lasting impact on U.S. inflation and reduce consumer spending, which would in turn put more pressure on stocks. He noted, however, that shocks have typically been short-lived.
The front-month Brent crude futures contract (BRNM26) climbed past $119 a barrel on Wednesday. It's due to expire Thursday, which could lead to price volatility. More broadly, Brent futures were up 6.7% to $111.42 a barrel, near the peak seen before the April cease-fire announcement, according to FactSet data.
Temporarily shutting in wells is a direct way to reduce output, but it's something oil companies try to avoid at all costs. That's because even a short-term pause can have lasting effects underground, damaging reservoir pressure and increasing the risk of mechanical problems. Restarting a well is also expensive, and reopened wells may never return to a normal production rate.
"The prospect of Iran having no place to store the oil and then, therefore, having to shut in wells - it's not like you turn the faucet on and then you turn it back off," said Sean O'Hara, president of Pacer ETFs, which manages one of the market's largest energy-infrastructure exchange-traded funds. "If a well stays shut too long, it could clog up, and the oil hardens a bit. Then it would take even longer before they can start it back up," he said.
Now see: Oil-production shutdowns loom as some Middle Eastern countries could run out of storage
Antoine Halff, an analyst at Columbia University's Center on Global Energy Policy, said production shut-ins may not be imminent, as Iran has diligently worked to expand its storage capacity and diversify its export options since about a decade ago.
"Rather than being driven to a sudden, catastrophic production drop, Iran can likely manage a more gradual, controlled and limited ramp-down at some of its fields than is currently assumed in Washington," Halff said in a Tuesday research note.
U.S. Treasury Secretary Scott Bessent said in a post on X last week that Iran's crude-oil storage on Kharg Island would be full "in a matter of days," at which point, he said, "the fragile Iranian oil wells will be shut in."
Still, Iran may curtail production fairly aggressively in the face of the continued U.S. blockade of the Strait of Hormuz, Halff said. Doing so would provide Iran with "relatively ample spare storage capacity" after the shutdown and would allow for "a smoother restart of operations."
President Donald Trump on Wednesday reportedly rejected Tehran's proposal to reopen the Strait of Hormuz and told aides to prepare for an extended U.S. naval blockade until Tehran agrees to address concerns about its nuclear program.
U.S. stocks were mostly lower on Wednesday afternoon, after the Federal Reserve left interest rates unchanged in its final interest-rate decision with Jerome Powell as Fed chair. The Dow Jones Industrial Average DJIA was falling 0.8%, while the S&P 500 and the Nasdaq composite were each off around 0.4%, according to FactSet data.
-Isabel Wang
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 29, 2026 15:43 ET (19:43 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments