Oil Price Shock Looms as Global Inventories Hit Record Lows

Global oil inventories are at critically low levels, and industry executives warn that another oil price shock could be imminent. The disruption to tanker traffic through the Strait of Hormuz has been ongoing for months, with no clear resolution in sight.

The International Energy Agency's (IEA) oil industry and markets division head, Toril Bosoni, said that once global oil inventories hit critically low levels, prices will have to adjust. This could lead to a sharp increase in oil prices, with dated Brent potentially rising to $150 or $160 a barrel.

Analysts at JPMorgan's Data Assets and Alpha group predict that if the Strait of Hormuz throughput normalizes to pre-conflict levels, the price spike will be limited. However, they also warn that the exhaustion of buffers could lead to a second price shock.

The conflict has embedded a lasting risk premium in crude, with knock-on effects for inflation, bond yields, and consumer spending. Investors say that recent events suggest a lasting structural change in energy markets, making it unlikely for oil prices to return to pre-war levels below $70.