ExxonMobil warns that oil inventories are approaching historic lows! If the Hormuz Strait remains closed, oil prices may soar to new highs.

The largest oil and gas giant in the United States, Exxon Mobil Corporation (XOM.US), warned on Thursday that oil inventories will reach record lows in the coming weeks, forcing oil prices to start a new round of soaring and suppress demand. Top commodity analysts on Wall Street have recently warned that the Strait of Hormuz is now not the "best to open as soon as possible," but approaching the stage of "must restore stable passage as soon as possible," once commercial and strategic inventories approach "minimum operational inventory", oil prices will shift from linear to non-linear. Exxon's Senior Vice President Neil Chapman said at the Bernstein investor conference in New York, "We are approaching unprecedented inventory levels." Chapman warned, "I mean, oil inventories are really, really low. You can argue whether they will reach those really low levels in two weeks or three weeks. Once you reach that point, you will see prices soar." The senior executive in the oil and gas industry said that when inventories reach historic lows in the coming weeks, the spot trading price of Brent crude oil will soar to $150 to $160 per barrel. He said, "When prices reach a certain level, demand destruction will help restore supply-demand balance." The International Energy Agency stated that the political conflict caused by the GEO Group Inc is leading to the largest supply-side shock in human society in history. The most recent July Brent futures contract closed below $94 per barrel on Thursday, mainly because traders are once again hoping for a long-term peace agreement between the United States and Iran, which would reopen the Strait of Hormuz. 1 billion barrels consumed! New round of oil price surge building up According to statistics from the International Energy Agency (IEA), the closure of the Strait of Hormuz by Iran may have caused the market to lose approximately 1 billion barrels of oil supply, the largest oil supply interruption in history. Swiss multinational investment bank UBS Group AG (UBS) said last Friday that as transportation through the Strait of Hormuz continues to be disrupted and inventories continue to decline, the global oil market is showing more and more signs of tight inventories and supply. The bank's research report indicated that global oil inventories declined by a total of 246 million barrels in March and April, and by the end of May, the cumulative production loss may exceed 1 billion barrels. UBS Group AG stated that the significant decrease in inventories suggests that the market is still "seriously undersupplied"; the research institution pointed out that despite a slight increase in oil stored on tankers due to U.S. exports rerouted to Asia, onshore crude oil and refined oil inventories are still rapidly decreasing. Since the start of the Iran war at the end of February, the Strait of Hormuz has been essentially blocked, cutting off one of the most core shipping channels that supplies crude oil, natural gas, and finished fuel oil to global customers, greatly raising energy prices and exacerbating global investors' inflation concerns. Citi, a Wall Street financial giant, released a research report stating that if long-term peace negotiations between the United States and Iran remain difficult, causing the continued closure and control of the Strait of Hormuz for a long period, the international oil price benchmark, Brent crude oil prices may rise above $100 again after a recent significant fall, and may even reach temporary new highs. Chapman stated at the conference that global oil inventories have buffered the shock so far, but this situation "cannot continue indefinitely." The International Energy Agency warned earlier this month that inventories are being consumed at a record pace. The organization's member countries had previously agreed in March to release a record 400 million barrels of oil to mitigate the impact of supply interruptions. Oil industry executives have been warning for the past two months that the crude oil futures trading market does not reflect the actual scale of supply interruptions caused by the Middle East war. Chapman said, "I don't know, whether it's two to three weeks or three to four weeks. What I really want to say is, once you reach the minimum inventory level and the lowest historical inventory level, prices can only go in one direction. This is the current grim situation." The Strait of Hormuz is a gateway for oil prices! The futures market is still hoping for a ceasefire, but the physical market is approaching a critical point The Strait of Hormuz is now not in the "best to open as soon as possible" stage, but approaching the stage of "must restore stable passage as soon as possible". If stable navigation, Gulf oil exports recovery, and slowed inventory consumption are not seen within the next two to four weeks, the international oil price benchmark, Brent crude oil trading price, returning above $100 may only be the first stage, with the $120 to $150 range becoming the core scenario for a Wall Street stress test. The reason is that the impact has shifted from a GEO Group Inc political risk premium to a real inventory consumption problem. Previous data from the U.S. Energy Information Agency (EIA) showed that as of 2024, approximately 20 million barrels of oil and oil products are transported through the Strait of Hormuz daily, equivalent to about 20% of global liquid oil consumption, while about one-fifth of global liquefied natural gas trade also goes through the strait. In other words, the Strait of Hormuz is not just a normal waterway, but the "artery" of the global energy system. Once it remains blocked, the market cannot completely substitute with other routes or short-term production increases. In the eyes of oil and gas industry executives, futures prices are still trading with hopes of a ceasefire, but the physical market and inventory system are approaching a critical point. The IEA's May oil market report shows that with oil tanker transportation still restricted through the Strait of Hormuz, the Gulf oil-producing countries have suffered a cumulative supply loss of over 1 billion barrels, with over 14 million barrels of supply being forced to interrupt daily. The IEA also stated that global oil inventories decreased by a record 246 million barrels in March and April. Inventories act as a buffer for the shock, but inventories are not an infinite reservoir; once commercial and strategic inventories approach "minimum operational inventory," prices will shift from linear to non-linear jumps. The recent U.S.-Iran situation has also reinforced the assessment that inventories are nearing the bottom and the Strait of Hormuz must be restored to stable passage as soon as possible. On May 28, the United States continued to impose new sanctions on Iranian military oil sales, targeting multiple vessels suspected of being involved in Iranian crude oil and oil product exports as well as related entities. This indicates that even with ceasefire or negotiation signals, the U.S. pressure on Iran's energy revenue has not stopped. At the same time, the market remains volatile around the extension of the U.S.-Iran ceasefire, the reopening of the Strait of Hormuz, and potential diplomatic arrangements, indicating that the so-called ceasefire agreement is still in an extremely fragile state: any resumption of hostilities, escalation of sanctions, or breakdown of navigation negotiations will quickly bring oil price risk premium back to the forefront. If the Strait of Hormuz cannot be reopened stably in the coming weeks, there is a high probability of a new round of oil price surges, and it may not be a mild increase, but a rapid surge driven by inventories, insurance, freight rates, physical procurement, and refinery restocking. The first to be hit is not regular gasoline, but aviation fuel, diesel, petrochemical raw materials, and spot purchases outside of long-term contracts for Asian importers. The EU has also warned that if the situation in the Strait of Hormuz does not improve, the European aviation fuel market will further tighten, although there has not been a physical disruption at the end yet, the price pressure has already manifested.