Oil Shortage Scenario is Starting to Surface

The warning signs are flashing brighter than ever. What began as a major supply disruption in the Middle East has rapidly evolved into a tightening global oil market where inventories are being drawn down at a record pace — and critically, not all of those barrels are actually accessible.

A new analysis from Oilprice.com highlights how the prolonged blockage of the Strait of Hormuz amid the ongoing conflict has removed hundreds of millions of barrels from the market, with cumulative losses already at 782 million barrels as of early May 2026 and on track to hit 1 billion barrels by late May.

This is no longer a theoretical glut-turned-deficit story. The physical buffers the world relied upon are depleting faster than many models assumed — and the operational realities of oil storage mean the situation could tighten dramatically in the coming weeks.

The Hidden Reality: Operational Stocks That Cannot Be Freely Counted

One of the most important — and underappreciated — dynamics right now is the distinction between reported inventories and operationally accessible barrels.

JP Morgan analysts, in a note titled “The Illusion of Plenty,” estimate that of the roughly 8.4–8.5 billion barrels of global oil and product stocks, only around 800 million barrels can be drawn without pushing the system into operational stress. The rest is locked in:

Pipeline fill requirements
Minimum tank operating levels (“tank bottoms”)
Refinery feedstock needs
Other operational necessities

Aramco CEO Amin Nasser recently warned that global onshore inventories of fuels are depleting at record speed. These are “the only buffer that is available today,” but they are “materially depleted.” He noted that maximum drawable volumes from storage in the US and Europe combined are only around 2 million barrels per day — far short of offsetting the multi-million barrel daily supply losses from the Middle East.

JP Morgan now projects that commercial inventories in the developed world could approach operational stress levels by early June and hit an “operational floor” by the end of the month if disruptions persist.

Global oil inventories are falling fast toward hard operational floors, according to JP Morgan analysis. Only a fraction of reported stocks can be drawn without risking system instability.

This aligns closely with recent commentary from commodity expert Jeffrey Currie (Carlyle, formerly Goldman Sachs). In interviews around the crisis, Currie has highlighted how quickly storage tanks are being drawn down, with Europe potentially hitting tank bottoms in May and the US around the July 4 period — even before accounting for the full lag in physical flows resuming.

Record Drawdowns from Strategic and Commercial Reserves

Countries and companies are pulling from reserves and commercial stocks more aggressively than many expected.

The US Strategic Petroleum Reserve (SPR) has seen record weekly drawdowns, including an 8.6 million barrel drop in one recent week — the largest on record. Levels have fallen to approximately 384 million barrels, the lowest since October 2024.

Globally, the IEA reports observed oil inventories fell at a rate of about 4 million barrels per day in March and April, with a 246 million barrel drawdown in those two months alone.

The IEA coordinated a massive 400 million barrel release from strategic reserves across member countries, with a significant portion already deployed.

These draws have provided a temporary cushion, but they are finite — and the operational constraints mean the effective buffer is smaller than headline numbers suggest.

IEA forecasts shifted dramatically: from expecting a large surplus to projecting a significant deficit in 2026 supply/demand balance due to Middle East disruptions.

The Longer-Term Bullish Case: Refilling + Reserve Expansion

Here’s where the story gets even more interesting for prices.

When (or if) supply flows normalize, the market won’t simply return to balance. Depleted inventories will need to be refilled. This restocking demand acts as a powerful additional bid in the market.

Analysts at the Atlantic Council have estimated that simply refilling the inventories drawn down during the crisis could require an extra 1.8 million barrels per day of demand for a full year (assuming a relatively quick resolution).

Many countries are also likely to rebuild and potentially expand their strategic petroleum reserves after seeing how quickly buffers were tested. This structural increase in demand for physical barrels could support prices for an extended period, turning what might have been a short-term spike into a more prolonged upward move in oil prices.

In short, the drawdown phase creates the conditions for a stronger restocking phase later.

Market Implications

If the Strait of Hormuz situation drags on, the risk shifts from a traditional crude price spike to something more severe: a refining and end-user fuel crisis, as warned by JP Morgan’s Natasha Kaneva. Refiners would face increasing strain as feedstock becomes harder to source at volume.

Even in a base case where flows gradually resume, the IEA and EIA see the market remaining severely undersupplied through much of 2026, with inventories continuing to draw and prices staying elevated (with some forecasts pointing toward $100+ levels in the near term).

Higher prices will eventually be needed to both ration demand and incentivize any available supply responses.

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