Strait of Hormuz Disruption Could Push Global Oil Inventories to Historic Lows in April

Investing.com - UBS states that if the Strait of Hormuz remains effectively closed, global oil inventories could drop to unprecedented lows within a few weeks.

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Economist Arend Kapteyn warned in a report on Tuesday that, at the current rate of inventory depletion, “by the end of April, inventories will reach historic lows,” which could intensify supply tightness and potentially cause crude oil prices to surge significantly.

Kapteyn wrote that pipeline deliveries from Saudi Arabia and the UAE, along with Iran’s ongoing exports and the International Energy Agency’s inventory releases, “can roughly offset half of the oil lost due to the closure of the Strait of Hormuz.”

Even so, he noted that this would still leave a “gap of about 10 million barrels per day,” forcing global crude and refined product inventories to deplete rapidly.

Inventory levels are also unevenly distributed. Kapteyn pointed out that while China holds about four months’ worth of crude oil imports, many low-income Asian economies will reach critical levels more quickly.

UBS states that this imbalance “increases the risk of panic buying as countries try to secure supplies before inventories run out.”

The price impact will be severe. Kapteyn believes that if the Strait of Hormuz remains closed, oil prices will “conservatively reach about $120 per barrel by the end of March, and $150 per barrel by the end of April,” and if demand does not decline significantly, prices could rise to $160 per barrel.

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