Global inventories are approaching historically low levels and continuing to fall, raising the prospect of intensifying price volatility and potential supply dislocations, according to UBS.

The bank’s oil and gas team, led by economist Arend Kaptyen, said in a note on Wednesday that global inventories stood at an estimated 8.2 billion barrels at the end of February, near the upper end of the past decade’s range, but have since dropped to around 7.8 billion barrels by the end of April, close to the bottom of that range.

UBS now expects inventories to approach all-time lows of roughly 7.6 billion barrels by the end of May.

That milestone is arriving approximately one month later than the bank originally forecast, owing to a combination of demand destruction, releases from strategic petroleum reserves and waivers granted on Iranian and Russian oil in transit, all of which have temporarily cushioned the pace of inventory draws.

UBS believes those mitigating factors are now fading, warning that “buffers have now largely been exhausted.”

UBS noted that the impact of lost supply has so far been concentrated in non-OECD economies, where real-time data are less reliable, but said inventory stress is increasingly likely to show up in wealthier nations, including the U.S., where higher-frequency data offer a clearer picture.

As stocks continue to tighten, UBS warned that oil prices are expected to become “increasingly convex and volatile,” and flagged a “risk of panic buying if physical dislocation intensifies and the Strait of Hormuz remains closed,” a scenario that would place further pressure on an already strained global energy system.

The dynamic may suit Tehran’s interests. The longer Iran holds out, the tighter global supply becomes, increasing economic pressure on the Trump administration to secure a deal that reopens the Strait of Hormuz and stabilizes energy markets.
Source: Investing.com