Super Warning! Could the oil crisis escalate into a full-blown disaster within a month?

Global oil inventories have provided a buffer against the severe production disruptions caused by the war between the United States, Israel, and Iran, while also mitigating the impact from the near shutdown of shipping in the Strait of Hormuz.

However, as hopes for peace diminish and data on Tuesday (May 12) showed U.S. inflation rising to a three-year high, analysts are starting to warn about the ongoing decline in energy reserves. #Iran Crisis Tracking#

Jaime Brito, Director of Refining and Oil Products at Dow Jones Energy, stated that from a geopolitical perspective, the current stalemate in peace talks—with a tangle of ultimatums and postponements—could last for a long time. "But from an energy perspective, this is like a snowball effect—every week that passes, the market grows more tense," Brito said.

Ipek Ozkardeskaya, an analyst at Swissquote Bank, warned that if the Middle East conflict does not end quickly, the world, including the G7 developed countries—which have long relied on robust oil reserves—will "begin to face shortages." JPMorgan analysts also recently noted that by early June, commercial crude oil inventories in developed countries could approach operational stress levels.

On paper, global crude inventories remain ample, including both commercial stocks held by enterprises and strategic reserves owned by governments. However, not every barrel of oil is available for use, and maintaining low inventory levels in itself brings issues.

Estimates for specific inventory sizes vary, as both corporations and governments are highly secretive about such data: they are reluctant to reveal how much crude oil they actually hold in reserve.

Morgan Stanley analysts recently estimated that global commercial crude inventories and Strategic Petroleum Reserves (SPR) total about 5.75 billion barrels; Société Générale of France estimated about 7.8 billion barrels; while JPMorgan estimated about 8.2 billion barrels. These three institutions combined both official and private data for their respective estimates. For comparison, global inventories in 2020 were around 9 billion barrels.

Antoine Halff, researcher at the Center on Global Energy Policy at Columbia University and co-founder of geospatial analytics firm Kayrros, said the decline in inventories is "unevenly distributed across regions and product types, with the largest drops in the most opaque sectors of the market."

He stated: "Asia is the main export destination for Middle East Gulf crude, so it's not surprising that Asian crude inventories are under the greatest downward pressure." He pointed out that since the outbreak of war on February 28, crude inventories in the Asia-Pacific region excluding China have dropped about 12%, falling to the lowest levels in at least a decade.

In March, the International Energy Agency coordinated the release of 400 million barrels from the strategic reserves of its member countries, providing the market with a certain buffer, with the U.S. Strategic Petroleum Reserve expected to supply nearly half of the backup supply.

Demand suppression measures have also helped respond to crude production disruptions, including cuts to flights by global airlines and restrictions primarily implemented in Asian countries. JPMorgan said that in March, global oil demand fell by an average of 2.8 million barrels per day, with the decline anticipated to widen to 4.3 million barrels per day in April, and further to about 5.5 million barrels per day in May.

JPMorgan analysts mentioned in a recent report: "A core assumption in our framework is that the accelerated drawdown of oil inventories will ultimately force the reopening of the Strait of Hormuz in some form."

On Tuesday, U.S. President Donald Trump embarked on a trip to China, while talks with Iran remain in deadlock. The current fragile cease-fire is still being maintained.

Oil price futures are trading above $100 per barrel. Meanwhile, rising U.S. inflation data have put pressure on equities—with the U.S. April inflation rate rising to 3.8% due to higher gasoline costs, the highest level in nearly three years.

Morgan Stanley analysts said on Monday that the oil market is in a "race against time." If the Hormuz Strait remains closed until June, the multiple factors that have helped contain crude price shocks so far will gradually lose effect.

Even if the conflict ends and tankers resume passage through the Strait of Hormuz, it would still take several weeks for transportation flows to normalize, and the market could continue to price in a risk premium for potential further disruptions.

Saudi state-owned giant Saudi Aramco warned on Monday that if the strait remains closed for several weeks, market rebalancing could extend into 2027, and "challenges to oil supply" would persist.

Aramco's comments echoed those made earlier this month by U.S. energy majors ExxonMobil and Chevron. Both companies saw profits decline in the latest quarter, and their executives also emphasized the market dislocations resulting from the conflict.