The new (im)balances in the oil market

As a result of the conflict in the Middle East and the near-total closure of the Strait of Hormuz over the past three months, the price of oil averaged around 103 dollars per barrel in May. Meanwhile, futures contracts maturing in 6-12 months have fluctuated between 80 and 95 dollars per barrel, maintaining a steeply negative price curve.1

In recent months, crude oil flows from the Gulf have dropped from 20 million barrels per day (mb/d) to 8 mb/d, due to the collapse of flows through the Strait of Hormuz (from 16 mb/d to less than 2 mb/d). This has been only partially offset by redirecting flows to alternative routes, notably the port of Yanbu in the Red Sea (see second chart). In this context, global oil production has fallen from around 106-108 mb/d to approximately 95 mb/d in April, indicating that the drop in production in Gulf countries has only been modestly offset by higher production in other regions. At the same time, global consumption has remained relatively stable, at around 103 mb/d in March and April (compared to approximately 104 mb/d in 2025). This indicates that the decline in demand remains limited and is mainly concentrated in a few Asian countries and in certain refined products.2 Thus, the global oil market has shifted from an oil supply surplus (crude and refined products) of nearly 2.0 mb/d3 to a deficit exceeding 8 mb/d. The key to mitigating this deficit has been the use of inventories.

Oil inventories can be divided into four layers. The first is oil that is stored on ships, either stationary or in transit, known as «oil on water». Due to its rapid availability, it is considered the first layer that typically provides flexibility to the market. Secondly, there are commercial inventories. These refer to the stocks of crude oil and derivatives held by the private sector – such as oil companies, refineries, and logistics operators – which are used for the ordinary functioning of the market. The level of these inventories is a key indicator of balance in the market, as it responds to the economic incentives generated by the conditions of supply and demand. Therefore, monitoring them is essential for assessing tensions in the sector and anticipating movements in oil prices. Thirdly, there are the strategic petroleum reserves (SPRs), primarily of crude oil, managed by governments with the aim of enhancing energy security and responding to exceptional situations, such as severe supply disruptions, geopolitical conflicts or natural disasters. Unlike commercial inventories, these reserves are not used for regular operational purposes; rather, they are released deliberately to stabilise the market and mitigate the impact of supply shocks.4 Therefore, they are a key tool in energy policy, capable of temporarily influencing global oil supply and prices. Finally, there are «operational minimums», which are necessary to keep the market physically functioning. As the final «cushion» in the oil market, between the three previous layers and the bottom levels defined by operating constraints, there are demand destruction scenarios. Here, the pricing system becomes the main balancing mechanism, cooling consumption to prevent stocks from falling to critical levels.5

OECD countries’ commercial oil inventories remain within their historical range. At the end of April, they stood just below 2.7 billion barrels, compared to an average of around 2.9 billion over the past decade. However, their rapid reduction (–150 million barrels between March and April) suggests that, at the current rate, commercial stocks could approach critically low levels by Q3. Even under the (benign) assumption of a swift resumption of global oil production beginning in June, returning to pre-conflict levels by the end of Q4 2026, OECD commercial stocks could hit historic lows in June and reach 2.4 billion barrels in Q3, slowly normalising thereafter. This reduction in commercial inventory levels implies a higher likelihood of non-linear price spikes in the coming months. Furthermore, those countries (and products) that are more dependent on energy supplies from Gulf countries, and whose reserves are more limited, will remain more vulnerable.6
For illustrative purposes, other scenarios could lead to greater market imbalances. On one hand, the short-term disruption could be greater than expected if talks between Iran and the US do not allow for a recovery of flows from June, leading to inventories reaching even lower levels in the coming months. On the other hand, the recovery of global oil production could be more gradual than expected, for instance, due to greater than anticipated damage to oil infrastructure
in the Persian Gulf or difficulties in restoring shipping flows through the Strait of Hormuz to pre-conflict levels, which would lead to lower inventory levels for a longer period. Given the close correlation between Brent prices and commercial inventories, these scenarios would entail even greater price pressures in the coming years.7